What is Entrepreneurs’ Relief?

Entrepreneur’s Relief (ER), first introduced in 2008, currently allows qualifying business owners to pay a reduced rate of Capital Gains Tax (CGT) of 10% on business disposals up to a lifetime allowance of £10m. The 2016 Budget extended ER to include external investors in unlisted trading companies.

In many circumstances, both a full sale of a business or of a smaller shareholding can qualify for ER.

Why is it at risk?

Entrepreneur’s Relief looks set to be a politically hot topic as the country heads to the polls in December with both of the main parties needing to find substantial cash to fund extravagant spending promises.

Sir Edward Troup, the former head of HM Revenue and Customs, says that “ER costs the country £2bn in lost tax revenues per annum and adds nothing to entrepreneurship”, concluding that there is a “very strong case for whichever party wins the election to ramp down entrepreneurs’ relief immediately”.

Troup goes on to say “The point of ER is that it rewards you when you make a lot of money. There are lots of things getting in the way of people becoming great entrepreneurs in this country, but the fear of tax on future gains is not one of them. Absolutely, the government should be helping entrepreneurs set up great businesses here, but the idea that having to pay more tax at the end is preventing their inventing things is nonsense.”

The Association of Accounting Technicians (AAT) is seconding this call to arms by urging Sajid Javed to take action in his first budget. Phil Hall, AAT Head of Public Affairs & Public Policy has publicly supported the scrapping of this tax relief, stating that ER is “extremely expensive, misguided and ultimately ineffective.” He adds, “The Government is absolutely right to want to encourage entrepreneurialism but is wrong to believe that ER is a good way to do this.”

What should I do?

If you are contemplating a transaction in the short to medium term, whether it is a full or partial exit, there is a strong case to investigate bringing this forward and concluding a transaction within the current tax regime in advance of the next post-election budget.

With an abundance of funding available from the corporate, private equity and debt markets, this might just be too good an opportunity for you to miss.

The team at HMT provides specialist advice to shareholders, management and companies on acquisitions, disposals and corporate restructurings.

Feel free to get in contact with our team on 01491579740 to discuss your particular circumstances before the bell tolls for this most lucrative of tax planning incentives.