By Aaron Hemmington
Hawsons Chartered Accountants
BUSINESS owners should be aware that Entrepreneurs' Relief, a valuable tax relief when selling or liquidating a business, could be limited or even abolished altogether on 11 March.
Entrepreneurs' Relief applies a reduced capital gains tax rate of 10 per cent to the first £10m of qualifying gains.
As the main rate of capital gains tax is 20 per cent, the relief can provide a tax saving of up to £1m for qualifying taxpayers. For a married couple this could be increased to £1m each.
The £10m cap is a lifetime limit and can be applied over a number of disposals.
Why is it under threat?
The relief has been criticised for failing to fully deliver on its policy objectives and also for the high cost to the Treasury (estimated at £2.4bn per year by The Institute for Fiscal Studies).
The Conservatives pledged to 'review and reform' Entrepreneurs' Relief as part of its election manifesto and further details are expected to be announced in the forthcoming Budget. The date for the Budget has been confirmed as 11 March 2020.
Some changes were made to Entrepreneurs' Relief last year including the introduction of a two-year qualifying period rather than one year.
So is this the end for Entrepreneurs' Relief?
It seems unlikely that the relief will be abolished altogether - historically there has always been a differential rate of tax for business disposals (prior to the introduction of Entrepreneurs' Relief this was provided by business asset taper relief and retirement relief). Nonetheless, the complete abolishment of Entrepreneurs' Relief has not been ruled out.
What might change?
The Chancellor may be considering raising the current 10 per cent rate of Capital Gains Tax in order to limit the amount of relief given. We could also see a reduction to the £10m lifetime limit.
The qualifying conditions for the relief could be tightened and there could be a further increase to the qualifying period.
There has even been speculation that we may go back to a relief with an age threshold, akin to retirement relief, but this seems less likely.
Of course, the review could be kicked down the street and we may not see any significant changes.
When would any changes take effect?
Although the Chancellor has vowed to review and reform Entrepreneurs' Relief, we do not know when any changes might be effective from.
Mid-year changes to tax rates are rare and it seems more likely that any changes would apply from the start of the new tax year in April 2020 or perhaps 2021. However, this is not always the case and it is possible that any changes would take effect from 11 March.
It is hoped that the government will consult before making any significant changes to the Entrepreneurs' Relief regime, giving interested parties an opportunity to comment on the proposals.
If you would like further advice on this matter, get in touch with Aaron Hemmington at Hawsons Chartered Accountants on 01604 645600 or email email@example.com