Business owners and shareholders should be aware of possible changes to Entrepreneurs’ Relief (“ER”) that may be announced in the upcoming Budget.
ER is extremely valuable, providing a reduced rate of capital gains tax (“CGT”) for individuals disposing of qualifying business assets, by charging CGT at only 10% (compared to the normal 20%), up to a lifetime limit of £10 million of qualifying gains.
The Treasury has admitted in the past that ER has been costing the government more than expected and, over the last few years, the ER legislation has been subject to a number of changes – including the increase in the qualifying period from 12 months to 24 months.
In their recent election campaign, the Conservative party promised to further “review and reform” ER. However, we do not know exactly what this will entail. Possibilities include an increase in the CGT rate for ER, a reduction in the lifetime allowance or another increase in the qualifying period. Any changes may come into effect overnight on Budget Day, at a later specified date or, most likely, following a consultation period (which has been the case for most recent reforms).
If practical, it may be beneficial to bring forward your business disposal or cessation to before Budget day (11 March 2020) so as to reduce the risk of being affected by any changes. However, it is important not to let the possible ER changes outweigh the commercial considerations of doing so.
Please get in touch with your usual Ryecroft Glenton contact on 0191 281 1292 if you would like to discuss any of the above in further detail.