Wed, 11 Mar 2020 | BUSINESS NEWS
In the Budget 2020, Chancellor Rishi Sunak has announced that the lifetime limit of Entrepreneurs’ Relief tax will be cut from £10 million to £1 million.
Sunak said that he had reviewed the tax and heard representation, including from the Institute of Fiscal Studies (IFS), recommending that it be abolished. However, the Chancellor said that he wanted the UK to be “risk-taking”, and that ER would be reduced rather than abolished.
While the Chancellor asserted that 80 per cent of entrepreneurs looking to sell their business would be unaffected, rumours that the relief would be cut or abolished had already led to criticism from business owners.
Despite criticism, many see Entrepreneurs Relief as a tax that rewards success, with Rachel Nutt of MacIntyre Hudson saying that the £10 million lifetime gains provided a “a valued incentive for entrepreneurs wanting to grow their business.”
Nutt went on to say that the tax was “of great benefit to small entrepreneurial business owners”.
In a letter to the Chancellor signed by over 150 business owners, Baron Howard Leigh said that entrepreneurs could look to relocate should the tax relief be cut and that such a decision would also impact entrepreneurs’ decisions to start new businesses.
By cutting the tax, it is thought the Chancellor will disincentivise entrepreneurs from selling their business, with many having set up businesses and paid tax and National Insurance on the basis that proceeds from a sale could fund their retirement.
BSR was a co-signatory of a letter, alongside other 150 entrepreneurs from the E2E community, addressed to the chancellor, addressing problems that would arise if Entrepreneurs Relief was to be abolished.
Eddie Bines, Director, Restructuring Advisory, Duff & Phelps, commented on the announcement: “The Conservatives pledged to review and reform Entrepreneurs’ Relief as part of their recent election manifesto, saying that the scheme hasn’t ‘fully delivered on its objectives.’ It was originally intended to encourage owner-managers to invest more in their businesses, but evidence suggests this has not had the desired effect. Coupled with the cost to the Treasury you can see why the Chancellor has had his eye on it.”
“The Chancellor's changes include raising the applicable 10 per cent capital gains tax rate or reducing the £10 million lifetime limit down to £1 million. These changes could be effective from as early as 6 April 2020.”
“The changes to this tax relief could be a significant blow to business owners and will come at the expense of the UK entrepreneurial community. Furthermore, these sweeping changes to the relief at this time would harm many business owners’ exit and retirement planning. The availability of ER would be at the heart of that.”
“We would encourage owner-managers to contemplate whether it is appropriate to accelerate exit and retirement strategies and potentially lock in the 10 per cent tax rate before it is too late,” Bines continued.
With more and more businesses impacted by the above changes and the coronavirus pandemic, we can expect the number of administrations and liquidations to rise drastically in the days to come.
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