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This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. The Financial Conduct Authority does not regulate tax advice.
The latest budget is set to be announced by Rishi Sunak, the new Chancellor of the Exchequer, on 11 March. We’ve already discussed some of what we expect in the upcoming announcement, and one of the items on the chopping block, as the new government has committed to an increase in public spending, is Entrepreneur’s Relief.
What is Entrepreneur’s Relief (ER)?
ER is a way for sole traders or business partners to pay less Capital Gains Tax when they sell their business or shares. ER stipulates this group pay tax at 10% on all gains on qualifying assets up to £10m, compared to the 20% that would normally apply.
Initially conceived in 2008 under Gordon Brown’s Labour government and later expanded by the Tories two years later, the relief’s goal was to incentivise the creation of new business. The prospect of less tax is meant to promote an entrepreneurial spirit and encourage people to start businesses without worrying about a massive tax bill.
While it had indeed helped people get their business started – and undoubtedly allowed doctors and dentists the ability to open their own practices, it has not been without criticism, with the current government taking the stance that it isn’t achieving what it set out to, but is actually just making the rich richer.
Changes in the budget
Scrapping the relief would free up £2.7bn per year that the government wants to funnel into public services instead. Critics claim that while ER should be reviewed, it should not be abolished altogether.
It’s possible the rate could just be raised or the current limit reduced. But there is a risk the new chancellor might face political backlash if it’s done away with completely. Others think, in the context of the larger budget, if it means other favourable tax incentives become available, then it might not be met with such resistance. But according to PM Boris Johnson, as the Treasury is against ER, chances are it will be terminated.
What can you do?
With the budget only days away, the time to act is now. If you were planning to take advantage of Entreprenuer’s relief and are concerned about what the budget announcement means for you, get in touch with us today.