Changes to Entrepreneurs’ Relief – What you need to know
- 13th March 2020
The Chancellor has announced that Entrepreneurs’ Relief (ER) is staying, but capped at a lifetime limit of £1m qualifying gains per individual with immediate effect.
This is better than complete abolition but still a bit harsher than many were hoping for.
ER allows business owners to dispose of their business at just a 10% rate of tax, compared to the standard capital gains tax rate of 20% for higher rate taxpayers.
Interestingly, looking at the detail of the legislation, anti-forestalling rules will mean that people who were trying to hedge their bets slightly by entering into unconditional contracts to “bank” ER ahead of the Budget may not have achieved their aim.
For disposals on or after 11 March 2020, or Budget Day, the amount of lifetime gains that qualify for ER will reduce from £10 million to £1 million.
The rules will also provide that the lifetime limit must take into account the value of Entrepreneurs’ Relief claimed in respect of qualifying gains in the past, so some may not have any allowance left already.
The legislation also contains rules that counter certain forestalling arrangements that seek to ‘lock-in’ to the pre-Budget day lifetime limit. In such cases the disposal will be subject to the £1 million lifetime cap unless:
- The parties to the contract can demonstrate that they did not enter into the contract with a purpose of obtaining a tax advantage by reason of the timing rule in section 28 of the Taxation of Chargeable Gains Act 1992, and
- Where the parties to the contract are connected, that the contract was entered into for wholly commercial reasons.
In addition, where shares have been exchanged for those in another company:
- on or after 6 April 2019 but before 11 March 2020, and
- both companies are owned or controlled by substantially the same persons, or
- persons who held shares in company A hold a greater percentage of shares in company B than they did in company A, and
- on 11 March 2020, the personal company test, the trading company and the employee/officer test are met in respect of company B,
then if an election is made under section 169Q of the Taxation of Chargeable Gains Act 1992 on or after 11 March 2020, the share disposal is to be treated as taking place at the time of the election for Entrepreneurs’ Relief purposes, meaning that the new lifetime limit of £1 million will apply.
Therefore, those businesses that have undertaken deals, which obtained Entrepreneurs Relief in the period 6th April 2019 to 11th March 2020, will need to revisit these to ensure they do not fall foul of the provisions that have retrospectively been put in place.
If you have any queries or concerns regarding this, especially the retrospective legislation please do not hesitate to talk to us.
For the technical note to the changes visit:
Any news or resources within this section should not be relied upon with regards to figures or data referred to as legislative and policy changes may have occurred.