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Entrepreneurs Relief – are there changes coming?

21 January 2020
Before the election the Government announced a review with a view to reform Entrepreneurs Relief as it was costing the Treasury much more than anticipated. If you are considering selling your business in the next 12 months, there are some actions that you can take to secure the current treatment.

Prior to the election in December, the Government announced plans to reform Entrepreneurs Relief (ER). In addition to the pre-election announcement, further indications were included in the Conservative manifesto that they would reform the Relief if they were re-elected.

What does this mean? 

Currently, ER applies a low rate of tax (10%) to a lifetime limit of £10m of capital gains incurred on the sale of a business, if it has (broadly) been owned for 2 or more years.  
Any reforms that are made to the Relief are likely to make the qualifying conditions more rigorous, or reduce the lifetime limit applying to the gain.  As we have a Conservative government, it is not thought that the rate will increase, although this is also possible.

In their manifesto the Government stated that they would not increase Income Tax, VAT or National Insurance rates, although there were no such promises for Capital Gains Tax (CGT).  While a CGT rate change may not be imminent, it remains a possibility.

Possible changes

  • Increase tax rate
  • Reduce lifetime allowance
  • Restriction on 'associated disposals'
  • Increase the ownership period
  • Restrict non-share capital qualification

When will this apply?

Although it is rare for changes to CGT to be made mid-year, it is not unprecedented. If significant changes are made, it is possible for them to have effect from the date of the next Budget, which is due on 11 March.  Otherwise, the changes are likely to have effect from 6 April.

This leaves a short time-frame to discuss the alternative options and implement the best plan for you.

What can be done?

We can devise a solution to lock you in to the current ER regime and avoid any nasty surprises, or find alternative tax efficient ways to structure the sale.  Some of the solutions are flexible enough that they can be unwound if it proves not to be an issue, or if you change your mind over the business sale further down the line.

Further information

For further information about the solutions available, please contact Roger Holman, one of our Private Capital or Tax team or your usual DWF contact.