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Entrepreneurs’ relief called into question

Article posted: 30th August 2018

The Resolution Foundation think tank today (30 August 2018) said that the benefits of entrepreneurs’ relief (ER) are concentrated among a few very wealthy individuals, costs the UK about £2.7bn a year, and there is no clear evidence of its effectiveness. It’s urging the government to scrap the relief.

Many of our clients benefit from ER capital gains tax (CGT) relief when selling shares in their company or an interest in a partnership. ER reduces the rate of CGT payable from the standard 20% of the gain realised to just 10% of the gain.

ER was introduced in 2008 and initially it applied to gains up to £1m. This lifetime limit was quickly increased to £10m, so that it can save an entrepreneur up to £1m in tax.

This isn’t the first attack on ER in recent years and the government has responded by changing the tax rules to target the relief on situations ‘deserving’ of it. This year’s Budget is expected in November and with the government under pressure to reduce expenditure, it may be tempted to act.

Scrapping ER altogether might be a bit drastic, but the Chancellor may be tempted to reduce the tax cost to the country, perhaps by reducing the lifetime limit of £10m or increasing the tax rate on eligible gains to nearer the 20% normal rate of CGT.

Only time will tell, but concerned business owners may wish to seek advice on what they can do now to protect themselves from future adverse changes to ER.

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