Possible Changes to Entrepreneurs’ Relief – 2020 Budget

As a business owner you should be aware of potential changes to a key tax relief on selling or liquidating your business that may be announced in the forthcoming Budget.

Some attention was directed towards Entrepreneurs’ Relief (“ER”) from both Labour and the Conservatives during the election, with Labour saying they would remove the relief and the Conservatives proposing review and reform but without concrete proposals. The Treasury has been flagging for a few years now that ER has been costing an increasing amount beyond their expectations. ER was first launched in 2008, and there has been some tinkering around the edges over the years, at first expanding its scope, but latterly reducing it with changes last year including making it a two year qualifying period rather than one year. In essence, ER allows a business owner to make gains on disposing of their business at just a 10% rate of tax on the first £10m of total gains since 2008, so it’s generous. Without ER, a business owner would pay a top rate of 20% capital gains tax.

However, unlike previous Budget predictions where ER has been mentioned by commentators as being “at risk”, that’s been pretty much Budget guessing to spice things up. This is now a specific proposal by the government so we expect something to happen – but we don’t know what, or when it might be effective from. An announcement could be made in the Budget with effect from Budget Day, or with effect from the new tax year in April, or even for 2021 or just kicked down the street for another “review”. Possibilities could be to increase the tax rate for ER, or reduce the lifetime allowance, or increase the qualifying period even further, or perhaps make it go back to something like Retirement Relief with an age threshold. We doubt that the Conservatives would take a sledgehammer and abolish ER entirely as that might feel too “anti-business”.

Bringing your business disposal or cessation forward to before Budget Day might be of benefit, but it might well not. The timescale could be very short, perhaps too short, to accomplish much. There are other factors in your decision too – including reviewing that everyone involved does actually qualify already for ER or considering whether other tax rules might apply such as the “phoenixism” rules. Those rules apply if you are thinking of liquidating your company to extract your cash and mean you can’t run the same or similar business within two years of liquidation.

The date for the Budget has now been confirmed for 11 March 2020

Garbutt + Elliott has a team of tax specialists who are willing to help. As always, in the world of tax, the rules are complex and this blog provides only a broad overview