As widely published there are expected to be changes to the well known capital gains tax relief known as entrepreneurs relief.
Designed to incentive the entrepreneurial spirit by allowing a 10% tax on gains accumulated on the sale of qualifying shares and activities the incentive has become synonymous with those with a higher net worth.
As a result campaigners have called for the government to remove the relief with Primer Minister Boris Johnson commenting that entrepreneurs relief served only the ‘staggeringly rich’.
In total the relief is believed to cost the treasury over £2.4 billion per year in tax revenues and changes are forecast in the upcoming budget.
Entrepreneurs relief was heavily criticised in a report last October by the Institute of Fiscal Studies which said there was no evidence that the tax motivated retention of profits translated into greater investment in businesses. The think tank’s report is known to have influenced the Treasury’s decision to review the relief.
Previous rumours had suggested a full scrappage of the scheme but the British Chambers of Commerce have said that scrapping the measure risked “undermining some of our most promising young firms and entrepreneurs by stifling investment.”
Instead it is believed that the Chancellor, Sajid Javid, will instead push for a reduction from the current limit of £10 million down to £1 million.
Many smaller business owners have invested in their businesses as a way of securing their future pensionable income on the expectation that the business sale will fund retirement. If entrepreneurs’ relief were to be fully scrapped this would effectively double the tax rate for these individuals as they approach retirement.
With this level of speculation of the forecast changes many business owners have been speaking to their accountants and lawyers to look for possible options ahead of the forecast changes.
The budget is scheduled for 11 March and we will be providing update of the outcome in our usual budget update available widely on our website, by email, or by post upon request.