Tax on business sale – entrepreneurs relieved?

5 July 2018

On 22 June 2018 five major UK life science membership associations wrote an open letter to the Chancellor Philip Hammond urging him to reconsider a planned extension of the scope of Entrepreneurs’ Relief’, stressing that the change does not go far enough and proposing an alternative approach.The planned changes were the subject of a consultation which ran to 15 May 2018, and one has to wonder whether the associations felt that the publicity of an open letter would give a better chance of their voice being heard or whether they missed the boat on the consultation.

Whichever it was, the letter is an interesting read and it’s hard not to have sympathy with their pleas.

When Entrepreneur’s Relief (ER) was introduced in 2008 it was a simple relief with correspondingly simple legislation. It was modelled on the defunct Retirement Relief which provided some useful case law as to application and, whilst less generous than the taper relief system which it replaced, it was well understood and easily applied.

Roll forward ten years and the relief has suffered from a decade of tinkering and loophole closing. The legislation – now lengthy, garbled and almost impenetrable to all but experienced tax advisers – and the nuances of the relief along with the tripwires they bring for the unwary mean that simply assuming that a 10% rate of Capital Gains Tax will apply to a business disposal is a very risky strategy.

However one silver lining remains: the qualifying period for ER remains mercifully short; in most instances being the 12 months leading to a sale or cessation. As such there are many family business situations where a little planning can very quickly move shareholders from a non-qualifying position to a qualifying one.

Like all matters tax related, taking early advice gives the best possible chance of a positive outcome and trying to plan after the event will leave matters to luck rather than judgement.

If you would like to discuss how Entrepreneurs’ Relief may apply to your circumstances, please contact me or your usual UHY adviser. Alternatively, fill out our contact form here.