Entrepreneurs’ Relief – Better News
Although the government has recently restricted Capital Gains Tax Entrepreneurs’ Relief (ER) in a number of ways (and may still do so further), there is at least some potential good news on the horizon.
HMRC has admitted that recent restrictions to ER had been excessive and are considering relaxing some of their 2015 changes.
ER allows qualifying individuals to pay just a 10% rate of CGT on disposal of business assets, rather than the normal 18% or 28% rates for non-business assets. In the March 2015 Budget the government unexpectedly excluded Joint Venture and Corporate Partners from being able to obtain ER on their JV or partnership trades. Couched in terms of stopping business owners who had less than 5% of a business from obtaining ER, in fact for many business structures where the owners effectively had far more than 5% they found themselves subject to a surprising blow below the belt and disqualified from ER. For many businesses, using a partnership or joint venture with an outsider is plain commercial sense.
We made representations to HMRC that the legislation had unintended anti-business consequences. HMRC have now acknowledged at a recent meeting with the professional tax and accountancy bodies that the legislation has “gone beyond the intended scope” and agreed to review it. The HMRC comments look genuine, and changes could therefore be made in the 2016 Budget, and could well be backdated to take effect from March 2015.
This is not a guarantee, but there are very promising noises from HMRC on this. Companies involved in partnerships or joint ventures should review their exit planning and whether, after all, they may now qualify for 10% ER.