22 January 2020
Ever since its introduction on 6 April 2008, there has been concerns about changes to Entrepreneurs’ Relief (ER) – the reduced 10% capital gains tax rate for qualifying business disposals (as compared to the main rate of 20% or 28% on residential properties).
I can recall people putting convoluted plans in place in case the rate increased or it was abolished. Yet, in the early years, it only became more generous when the lifetime limit increased from its original £1m to £2m in March 2010, £5m shortly thereafter, and to £10m in 2011.
In advance of every Budget, there will be at least a dozen people asking me, “what’s going to happen to Entrepreneurs’ Relief?” The simple answer is that we don’t know and it is mere speculation to try and second guess what might happen on Budget Day (11 March 2020). What we do know is that there was plenty of talk around it in advance of the recent general election and pressure was mounting to make changes and potentially abolish the relief. That pressure has eased somewhat given the result of the general election, but recent press comments continue to add to the speculation.
So, what might change?
Well, at the most extreme it could be abolished completely. This seems unlikely (although not impossible) given we have had a differential rate of tax for business disposals for decades - for those of you old enough, think back to retirement relief and business asset taper relief!
As was the case in the early years of ER, the lifetime limit could be tinkered with and potentially reduced back to lower levels, thereby restricting relief to smaller disposals.
The rate could be increased and, if I were a betting man, this is where I would put my money if there are to be any changes. If the rate were increased towards the current CGT rate of 20% (perhaps with a corresponding increase of the main CGT rate at the same time?), qualifying disposals would still benefit from a lower rate of tax, particularly when compared with income tax rates.
The rules could be tightened to restrict qualifying disposals, although would this grab the headlines and just be seen as tinkering around the edges?
Finally, as for the last nine years, there might be no significant changes and business owners will continue to obtain the benefit of a 10% CGT rate on disposal of their business.
What can you do?
We could stare at the crystal ball for weeks, but the best advice is that if there is a sale on the horizon then putting all your efforts into completing it prior to 11 March 2020 is probably the safest way to bank ER in its current guise.
For more information on the Entrepreneurs' Relief, or any other tax queries you may have, please contact me or your local UHY specialist.
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