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Entrepreneurs’ Relief – What’s the Big Deal?

As a business owner looking to sell the worst has been confirmed by Rishi Sunak in his Budget – or has it?

Before the Budget, it was rumoured that Entrepreneurs’ Relief was going to be abolished completely, yet instead it has been reduced from £10m to £1m.

 

Do you have an exit or growth strategy in place?

 

Previously, Entrepreneurs’ Relief reduced the rate of capital gains tax (CGT) from 20% to 10% on the first £10m of gains from disposals of qualifying business assets, with that being reduced to £1m in the Budget. Following this, the higher rate is 20%, which is still a lot less than personal tax. It’s also a lot less than if a seller sold the assets of a business, as they could pay 19% corporation tax, followed by up to 38.1% dividend tax.

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UK Budget Predictions – What Should we Expect to Happen to Entrepreneurs’ Relief?

Following the cabinet reshuffle last week seeing Sajid Javid resign, there was speculation as to whether his successor, Rishi Sunak, would deliver the budget on time. However, it has now been confirmed that the budget will go ahead on the 11th March, giving the new chancellor just three weeks to fine tune his budget.

It is expected that Sunak will rewrite some of Javid’s budget, relaxing some constraints, although he is under pressure from the government to tax the wealthy to cater towards additional spending.

One of the pledges the government made during its election campaign was to reform Entrepreneurs' Relief over concerns it is overly generous to the wealthy and has been criticised due to its unexpected cost to the treasury and failure to meet its policy objectives.

As a brief overview, the policy reduces the rate of Capital Gains Tax from 20% to 10% on the first £10m of gains from disposals of qualifying business assets – which can save up to £1m.

The good news for business owners is the policy is unlikely to be eliminated as the Conservative Party’s policy was to ‘review and reform’ and the relief has always been conceived as a key incentive to entrepreneurs, and encouraging enterprise has always been a priority for UK policy makers. As well, when Entrepreneurs' Relief was first introduced, it replaced business assets taper relief which itself replaced retirement relief, therefore it is likely that a similar relief will be introduced in Entrepreneurs’ Relief stead.

Despite the above speculation, we will not know until the budget is delivered the extent of the reforms. While the simplest way to protect against any changes would be to secure an unconditional exchange of contracts ahead of budget day, if an exit strategy has not already been considered and with only three weeks to go, this is becoming increasingly unlikely. Therefore, any business looking to take advantage of the current Entrepreneurs’ Relief rate should seek specialist professional advice as soon as possible and consider exit options in advance of the 11th March.

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The 2017 Spring Budget

Phillip Hammond of the British Conservative Party has delivered his first budget, outlining the governments plans for both the economy and public finances. We at Benchmark International have put together a summary of all this, highlighting the most important points and explaining just what kind of impact they will have on the average taxpayer.

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