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Tax relief goes in full circle

By Aaron Hemmington

Hawsons Chartered Accountants

I WILL remember the 2020 Budget for the intense speculation that preceded it in respect of Entrepreneurs Relief (ER) following indications in the Conservative Manifesto that they would be reviewing the relief.

Would the government abolish the relief? Would there be immediate changes to the qualifying conditions for the relief? Would they announce a consultation? These were all questions that, as Tax Adviser, I was being asked by clients and contacts in the run up to the Budget.

These questions made me think back to 2008 when Entrepreneurs Relief was rushed in by the then Labour Government as a replacement for Business Asset Taper Relief (BATR). Some of you may recall that BATR provided a 10 per cent rate of Capital Gains Tax on the disposal of qualifying business assets. However, there was no upper limit as to the amount of qualifying gains this was applied to which was politically controversial. When ER was hastily introduced as its replacement it also applied at 10 per cent rate for qualifying persons on qualifying disposals of business assets. However, from its introduction in 2008 the 10 per cent rate was only applicable to the first £1m of qualifying lifetime gains which was aimed at appeasing the critics of BATR.

The lifetime limit was then subsequently increased to £2m from 6 April 2010, £5m from 23 June 2010 and £10m from 6 April 2011. This again led to criticism of ER on the basis of it being regressive and ineffective. However, if the government were to completely abolish it, what incentive would there be for people to start up and grow businesses? In my view, the easiest solution was always to simply reduce the lifetime limit and this is exactly what Rishi Sunak announced when he stood at the dispatch box to deliver his first Budget. He declared that the lifetime limit for ER would be reduced back down to £1m with effect for disposals on or after 11 March 2020. Notwithstanding other technical changes that have been made in recent years, ER had travelled in full circle back to the original lifetime limit of £1m.

As always there was further detail in the small print. The rules will also provide that the lifetime limit must take into account the value of Entrepreneurs’ Relief claimed in respect of qualifying gains in the past. In addition, there are anti-forestalling rules aimed at certain arrangements entered into before 11 March 2020 where individuals have exploited the CGT timing rules to trigger disposals before Budget Day.

If you would like further advice in relation to Capital Gains Tax or any other tax matters, get in touch with Aaron Hemmington at Hawsons Chartered Accountants on 01604 645600 or by email

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