It has been rumoured that next week’s Budget will bring the news that Entrepreneurs’ Relief will be scrapped, hitting businesses with a £2.7 billion tax increase.
Entrepreneurs’ Relief currently halves the capital gains tax paid by people selling their own businesses, up to £10 million of lifetime gains. It was introduced in 2008 to incentivise people to start their own business, but has come under criticism for unfairly benefitting businesses in the South East of England.
The Federation of Small Businesses estimates that scrapping the Entrepreneurs’ Relief will cost small businesses an average of £15,000 each, threatening the retirement pots of many. With only 10% of businesses being sold for over £1m, the move has been described as a ‘threat to everyday entrepreneurs’ and runs the risk of entrepreneurs moving overseas.
It is not known whether any changes will start from the date of the Budget (11 March), from the start of the new tax year (6 April) or, at the very outside, from 6 April 2021. It would be unrealistic to expect most businesses to complete sales in time for Budget day in order to benefit from Entrepreneurs’ Relief.
Companies that put in place a holding company since April 2018 can trigger a Section 169Q election, which would come under the CGT rules (including Entrepreneurs’ Relief) at the time the holding company was put in place. The majority of business owners, however, will have to wait and see if Entrepreneurs’ Relief is scrapped or just amended on Budget Day.
Although no decision has been made, if you are concerned about the scrapping of Entrepreneurs’ Relief or haven’t got a firm exit plan in place, you should speak to your accountant and make plans