Entrepreneurs’ Relief was introduced by the Government in 2008 to replace business asset taper relief and the earlier retirement relief. It was designed to allow taxpayers access to a 10% rate of Capital Gains Tax (CGT) when they dispose of shares of a company, as long as they meet some requirements.
Since its introduction, Entrepreneurs’ Relief has seen a number of amendments that increased qualifying gains from £1m to £10m. Additionally, the 2018 Budget increased the qualifying period to 2 years.
However, the Conservative Party’s manifesto for last December’s general election promised to “review and reform” ER. This has led to speculation that Entrepreneurs’ Relief will be reviewed in the upcoming 11 March Budget.
So what’s next?
Some hypothesise that the Government will abolish Entrepreneurs’ Relief altogether, rather than reforming it, just to replace it with a new CGT relief. Others have called for a more gradual reform to reduce the lifetime allowance or introduce stricter requirements to benefit from the relief
On the one hand, Entrepreneurs’ Relief costed the Treasury £2.7bn in 2017/18, which might give the Government enough of a reason to limit the benefits of the relief. Additionally, critics of ER see it as a “tax break for the wealthy” that promotes economic disparities.
On the other hand, ER constitutes a great opportunity for entrepreneurs to plan their retirement or an exit from their business, and since it applies to venture capitalists it makes a good incentive for investment in UK start-ups.
ICAEW has called for a more careful consideration of all factors that come into play when assessing the effectiveness of Entrepreneurs’ Relief, suggesting that the Government seeks inputs from the parties involved who currently benefit from the Relief. Ideally, an in-depth research should be carried out to look into the real influence of ER into investment and exit decisions of venture capitalists, Founders and business owners.
However, such a detailed review is unlikely to be feasible in the short time left before the 11 March 2020 Budget, and the potential savings of £2.7bn might be appealing enough to the Government to scrap or considerably limit Entrepreneurs’ Relief.