What a relief! Don’t speak too soon…

Insights - 28/02/2020

What is it? 

As a brief reminder from last month’s article, Entrepreneurs Relief (ER) can reduce the rate of Capital Gains Tax (CGT) payable on the sale of shares or certain business assets to as little as 10%. ER is, therefore, a significant and valuable relief and, with a lifetime allowance of £10million, it can be worth up to £1million.

ER is estimated to have cost the Treasury £2.4 billion per annum since its inception.

Is this relief at risk? 

The main criticism of ER is that it has not fulfilled its purpose.  Some commentators argue that it does not assist start-up companies/entrepreneurs, but instead gives money to those who are already successful and it is too favourable to investors.

There were minor amendments to ER, which were effective from April 2019, but the consensus appears to be that these did not go far enough (and were more concerned with qualifying criteria rather than altering relief rates) and did not provide real incentive for entrepreneurship.

Labour indicated in its 2019 manifesto that it was going to abolish the relief altogether.  The Conservative manifesto was more cautious, advising that it would ‘review and reform’.  While the more immediate threat of abolition in its entirety has been viewed by some to have receded, there remains a significant question mark as to whether the relief will remain in its current form and, if so, for how long.

It is of course unknown as to how the new Chancellor, Rishi Sunak, will choose to deal with this in the upcoming budget but it appears very likely that this will remain on the agenda.

The options as to the continuation or otherwise of ER available to the Chancellor include:

  • A review/consultation of the relief (on the basis that business owners have based their future plans around it);
  • Abolition effective from 6th April 2020 with potentially anti forestalling provisions. This would deny the relief to transactions from 11th March which are artificially constructed to benefit from it);
  • Phased abolition;
  • Amendments to qualifying criteria; and
  • Amendments to the percentage relief rate / lifetime relief rate or even CGT rate.

What does appear likely is that reform to ER is on the way and, if so, it will have tightening (rather than a loosening) effect.

To discuss any matters relating to the above or any other commercial or corporate requirements, please contact Louise Fegan, Partner in the Corporate and Commercial team by email at [email protected].

Other articles from February's newsletter

Disclaimer:

Although correct at the time of publication, the contents of this newsletter/blog are intended for general information purposes only and shall not be deemed to be, or constitute, legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. Please contact us for the latest legal position.