In some of the small print of the recent Conservative election manifesto was the pledge to review and reform Entrepreneur's Relief.
Posted on 4th January 2020 at 10:13
Entrepreneurs' relief means you may pay a lower Capital Gains Tax rate, charged at 10% on the first £10m of gains, when selling a qualifying business. This effectively can halve your Tax bill when selling when compared to the standard 20% rate of CGT.
Introduced by the last Labour government to mitigate the unintended negative consequences of the 2008 CGT reforms, Entrepreneur's Relief has never been popular with treasury mandarins. It's costs the exchequer around £2.5bn a year and its abolition is seen by many pen pushers as a quick saving.
However, although it is called a relief we should not forget that it was introduced over ten years ago so that most business people could continue to sell their businesses without an increased tax liability. The reforms of 2008 saw the scrapping of tapering when calculating CGT liability on assets. This effectively meant a tax at the point of disposal of 10% for most business assets over two years old.
An argument for its abolition now is that the relief is enjoyed by those businesses that change hands because of a retirement sale. And so the argument follows that these businesses would be sold anyway as people have to retire some point. This is a civil servant's argument if I've ever heard one. What's more it completely ignores the Conservative Party's previous philosophy that those starting a business were the lifeblood of the economy and should be rewarded for their efforts.
By all means reduce the lifetime limit which each person can claim but don't penalise those who have spent blood, sweat and years to provide themselves with their own pension fund.
Tagged as: Entrepreneur's Relief, Lower Capital Gains Tax
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