Entrepreneurs’ Relief, a valuable tax relief for retiring business owners, is potentially at threat from the upcoming Budget 2020 following Prime Minister Boris Johnson’s admission that the treasury opposes the “giveaway” tax break. The initiative which was originally introduced by Alistair Darling of the Labour Party in 2008 under then Prime Minister Gordon Brown’s regime, was brought in to deliver significant advantages for anyone looking to sell a company. Although it is fair to say that Mr Brown was not the most popular of Prime Ministers’ amongst business owners, Entrepreneurs’ Relief was welcomed by businesses enabling some business assets, including the disposal of certain shares, with qualifying gains being taxed at a rate of 10%.
The qualification threshold was initially capped at £1 million per person but has since been raised to £10 million and was seen to make a huge difference to your Capital Gains Tax when you sell all or part of a company.
Of course, the main issues with this amongst critics was that the scheme gave large sums of money to those who have already made their wealth and that the rich continued to get richer whilst everybody else was left behind. In addition to the above criticism, several groups believed that the relief should be targeted at start-up companies rather than those who have already made their fortunes.
Another argument to scrap or curtail the scheme followed extensive research by the Institute for Fiscal Studies, which suggested that not taxing these Capital Gains at the full rate of 20% was costing the Treasury approximately £2.4 billion per annum.
Leading up to the General Election, the Conservative Party had signalled in their recent manifesto that Entrepreneurs’ Relief would be reviewed and reformed. Following on from the words of the Prime Minister, it is evident that there is every chance that the new Chancellor of the Exchequer, Rishi Sunak, will look to implement changes to the Entrepreneurs’ Relief rules in the Budget on 11 March 2020.
At the present until the Budget, we do not know the full extent of any changes to Entrepreneurs’ Relief and whether change would be retrospective. It may be prudent if you are in the process of selling your business, to contact your tax accountant or advisor to consider whether such deals should be completed before 6 April - or, prior to the Budget on 11 March.
What to do if the Entrepreneurs’ Relief is scrapped?
With the potential removal of the Entrepreneurs’ Relief scheme imminent, the tax rate on any gain from the sale or disposal of such assets will potentially increase to 20%. If you are thinking about disposing of a qualifying asset, then it may be prudent to investigate the options available to you with your accountant/tax advisor. This may be especially relevant for contractors caught by the new “off payroll working rules” who are thinking about or are in the middle of winding up their companies.
We can work with you and your tax advisor to facilitate a winding up which would enable you to seek this relief. We are happy to chat regarding the Members’ Voluntary Liquidation so do contact to discuss the options available to you and how to best proceed.
Please note we are unable to give tax advice, and this should be sought from your Tax Advisor.