- Is entrepreneurs' relief about to be reduced or disappear altogether?
Is entrepreneurs’ relief about to be reduced or disappear altogether?
Is entrepreneurs’ relief about to be reduced or disappear altogether?21st February 2020 - Published by
It was well documented in the run up to the December election that, had Labour won, they would have scrapped Entrepreneurs’ Relief. What was less well-publicised was that hidden in the Conservative manifesto was also a statement that they would seek to review and potentially reform it.
A reminder of what Entrepreneurs’ Relief is
Entrepreneurs’ Relief allows company owners to pay capital gains tax at a reduced rate (10%, as opposed to the usual 20%) on the first £10m of qualifying gains when they sell all or part of their business.
As it stands, you can rely on the relief when selling your business as long as:-
- Your business has been trading in the two years preceding the sale; and
- You are either an officer or employee of the business in question and were so for the same two-year period; and
- Where the business is a company, broadly that you hold at least 5% of the ordinary share capital (although where there are alphabet or similar shares in the company, the rights need to be looked at carefully).
What is being announced?
The Chancellor’s budget announcement, planned for the 11th March 2020, is expected to shed more light on the position.
Although it is not clear whether the relief is due to be altered or scrapped altogether, there is no doubt that entrepreneurs could experience an abrupt change. Presently, the relief provides qualifying taxpayers with a tax saving of up to £1m each (which in a family situation can amount to multiples of this).
If there are to be changes, there is also uncertainty as to when they might take effect. We see two possible scenarios:
- Traditionally, tax changes announced in the budget take effect from midnight of the 5th April following the budget. This makes tax compliance simpler where the rules change at the very end of the tax year, rather than during it.
- However, announcing any changes on the 11th March to take effect on the 6th April will lead to significant planning in the 25 days between the budget and tax year end, leading to a potential loss of revenue. Any rule changes might therefore take effect at midnight on the 11th March to try to prevent any planning being undertaken.
We can do something about it
If you hold assets that currently qualify for the relief and are considering selling your business, you should get in touch. There are a number of solutions that may allow you to capitalise on the relief under the existing regime, even if the current rules are about to change, without triggering an immediate tax charge. However, there is only a very small window to put planning in place if any changes do take effect from midnight on the 11th March.
If you are thinking about selling your business in the next three years – and, we would suggest, even if there is only a low probability – please call the tax team for an initial discussion about your options and planning opportunities on 0161 838 7882 or click here to contact us.