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An article in the mainstream press has noted that HM Revenue & Customs has taken an additional £274m in inheritance tax (IHT) from its investigations into 5,638 estate administrations in the 2019/20 year. This is the highest in over 4 years and equates to an additional £48,500 of IHT for each estate which has been investigated.Experts have said that this is “due to the complexities of the IHT system” but probate professionals and commentators have instead pointed towards the recent uptake in probate applications submitted by personal rather than professional applicants. It appears that the Probate Registry’s new application procedures, which are now available online, have made it increasingly accessible for lay executors to attempt to file IHT returns and apply for probate themselves, rather than instruct an experienced professional, such as a solicitor, to undertake this work for them.This dramatic rise in investigations undertaken by HM Revenue & Customs and the substantial additional IHT claimed highlights the importance of instructing experienced professionals to undertake this work now, more than ever. Presenting information in the right way to HMRC limits the risk of enquiries and investigations, while it is clear that filing IHT accounts without professional assistance can be a false economy.Collyer Bristow LLP has again maintained its position as a top UK private client law firm in the eprivateclient rankings. Please contact us if you require assistance.

Of all Revenue investigations, domicile enquiries are uniquely laborious, time-consuming, and financially and emotionally costly for taxpayers.Frequently, their scope balloons to vast proportions, with lengthy schedules of questions being followed by yet more schedules of questions, and then more still, and more. Many of the details requested have limited or no conceivable relevance to a person’s domicile, but HMRC justifies its approach by claiming that it is “in the information gathering” phase of its enquiry, and because domicile can only be ascertained “in the round”, by examining all aspects of a person’s history and lifestyle. Restraining HMRC only to relevant considerations can be a task of Herculean effort.Superficially, examining a taxpayer’s unique situation “in the round” on the basis of all the available evidence might seem positive: it should, after all, be preferable to the rough justice of an inflexible rule of thumb. But in domicile enquiries, its effect is that of a bludgeon rather than an incisive scalpel.Unfortunately for taxpayers, HMRC seems to consider that the “information gathering phase” of a domicile enquiry lasts from its outset until the point that the investigating officer considers him- or herself ready to make a determination. Too often, that is several years after the enquiry was opened. In the meantime, the taxpayer will have spent large sums on professional advice and suffered unwanted (and, in many cases, unwarranted) intrusion into all aspects of their private lives, which can include re-opening painful memories and explaining complex family relationships.In recent years, HMRC has significantly increased the number and scope of enquiries into taxpayers’ domicile status – especially where the person in question has spent several years resident in the UK. The attraction of taxing a person’s worldwide estate on death at 40% is doubtless a powerful lure for the Revenue.Unfortunately, HMRC’s unwillingness to be satisfied where evidence – other than the taxpayer’s recollection – no longer exists is particularly problematic. It has reached the stage where the prurient prying and sour tone in many domicile enquiries is causing real concern among professional advisers that HMRC’s conduct risks damaging the UK’s reputation among internationally-mobile individuals. And word gets around – especially as some national groups are disproportionately affected.So what is an affected taxpayer to do?Perhaps conscious that HMRC might occasionally over-reach itself, Parliament enacted a specific safeguard: the right for a taxpayer to apply to the Tax Tribunal for an Order directing HMRC to issue a closure notice in an enquiry. This balances the right of HMRC to investigate a person’s domicile with the right of the subject to require a final decision within a reasonable period of time, once sufficient information has been provided. If that closure notice is adverse to a taxpayer, he or she then has a right of appeal to the Tribunal, which can uphold or overturn HMRC’s decision.In the recent Henkes case (Henkes v HMRC [2020] UKFTT 00159 (TC) (Judge Tony Beare)), the Tax Tribunal considered an application by Mr Henkes for a closure notice in HMRC’s domicile enquiry, which, by the time of the hearing, had been open for over three years.What makes Henkes so important is the Tribunal’s decision that it has the jurisdiction conclusively to determine a taxpayer’s domicile in the context of a closure notice application – and not just in a substantive appeal against HMRC’s determination once issued. Moreover, the Tribunal’s determination of a person’s domicile, once made, is binding both on the taxpayer and on HMRC for the tax years in question, and may not be re-litigated in any Court or Tribunal in future proceedings.In so deciding, the Tribunal departed from the decision and reasoning in Levy (Levy v HMRC [2019] UKFTT 0418 (TC) (Judge Andrew Scott)).This case is significant because it brings forward the point at which a taxpayer can expect a determination of his or her domicile, thus – hopefully – shortening HMRC’s enquiry and saving substantial professional costs. The Tribunal did make it clear that it would not be appropriate to determine a taxpayer’s domicile in every such application, and as more appeals follow Henkes the limits of the Tribunal’s willingness to do so should become clearer.Unfortunately for Mr Henkes, the Tribunal decided that he was domiciled in the UK.  But the strategic loss for HMRC – which had argued that the Tribunal did not have jurisdiction to determine domicile in a closure notice application – was much the greater. It is not yet known whether Mr Henkes and/or HMRC will appeal to the Upper Tribunal.In the meantime, taxpayers suffering lengthy and intrusive domicile enquiries should be emboldened by the Henkes decision into requiring HMRC to issue closure notices within a reasonable period, failing which they should take advice about applying to the Tribunal for an Order. In many cases, this could turn out to be an invaluable tool in the taxpayer’s armoury.But the most positive outcome from the Henkes case would be if HMRC changed its approach to domicile enquiries from its present antagonistic model back to the common-sense attitude which prevailed in previous years. One lives in hope!

One of the consequences of the lockdowns being implemented in a number of countries – including the UK – as a result of the coronavirus pandemic is that normally internationally-mobile company directors find themselves stuck in one jurisdiction, unable to leave (or, at least, to do so whilst following official advice).The personal consequences for affected individuals (such as enforced separation from family and colleagues) might seem bad enough – and that is where thoughts inevitably first turn.Compounding that, are the personal tax implications. Though many countries have issued general guidance indicating that days spent during an enforced stay ought not to be counted when assessing whether a person is resident in that jurisdiction. For the UK Government, HMRC has issued such guidance, confirming that the “exceptional circumstances” provisions of the statutory residence test should apply, which is much to be welcomed: see here.However, less attention has been given to the tax residence status of companies as a result of directors finding themselves stuck.Like many countries, the UK treats a business as being resident in the UK if its place of “central management and control” is in the UK (provided that no applicable double tax treaty establishes its residence in another jurisdiction). Unlike the statutory residence test for individuals, these rules have been developed by case law over a long period of time (the leading case, De Beers Consolidated Mines Ltd v Howe (Surveyor of Taxes), dates back to 1906).The “central management and control” of a company is the jurisdiction in which its strategic policy and management decisions are taken. Those decisions can be contrasted, for example, with less strategic operational decisions, and also the execution and implementation of decisions already taken elsewhere.Directors forced to remain in the UK might not think twice about continuing their involvement in the business. E-mail, mobile phones, and video conferencing mean it has never been easier to work wherever you are. However, if that place is in the UK then care should be taken to avoid HMRC treating the company as being “managed and controlled” – and so tax-resident – here.Other jurisdictions, such as Ireland, Australia and Jersey, have issued guidance confirming that their national revenue authorities will not seek to capitalise on the global dislocation caused by coronavirus by asserting that foreign companies have become resident there because of the actions of their directors.HMRC has not – yet – issued similar guidance, and so company directors would be prudent to assume that existing UK rules on e-communication still apply. Whilst there is little direct judicial authority on the point, it is widely thought possible that a director who takes decisions in the UK – including through participation in board meetings – can inadvertently cause the company to become resident here.Fortunately, on 3 April, the OECD released guidance for member countries (including the UK) on the application of tax treaty rules to the residence of individuals and companies – at least, insofar as double tax treaties are concerned. The OECD guidance confirms inter alia that “It is unlikely  that the COVID-19 situation will create any changes to an entity’s residence status under a tax treaty.”It is hoped that the UK Government will accept the OECD’s timely and practical guidance and that HMRC will shortly issue updated guidance of its own confirming that directors forced to remain in the UK can continue their work without fear of making their business tax resident here.

It was widely predicted that the Chancellor would take steps in the Budget to reform Entrepreneurs Relief, which has been widely criticised for years for failing to meet its intended policy objective of encouraging entrepreneurship whilst at the same time being very expensive for the Exchequer.  As the Prime Minister recently commented, “…there are some people who are staggeringly rich who are using that relief to make themselves even more staggeringly rich.”So the decision to cap the relief at a lifetime limit of £1m (down from £10m) was expected.It takes only 5 lines in the published draft legislation to reduce the Entrepreneurs Relief cap to £1m.  But no-one seriously expected the next 2 1/2 pages of the draft legislation to be taken up with retrospective so-called “anti-forestalling” provisions (designed to defeat pre-Budget planning by those wishing to take advantage of the £10m lifetime limit whilst it still remained in force, in advance of the announcement of its reduction).This article provides a critique of the retrospectivity of the anti-forestalling provisions of the change to the Entrepreneurs Relief lifetime limit.  It questions the lawfulness of the Government’s proposals and it doubts their wisdom: the Chancellor was badly advised by his officials.  It explains the affront caused to the rule of law and it concludes that the appropriate course of action is for the Government to withdraw the retrospective aspect of the provisions as the Finance Bill goes through Parliament.  If the Government does not voluntarily do so, MPs and peers who care for the rule of law (and many profess to) should force the point by putting down amendments seeking to strike the offending sections from the Bill.Immediate EffectIt is unusual for a tax rate – or the availability of a relief – to change during a tax year, and most would have expected the new Entrepreneurs Relief cap to come into effect on 6 April 2020 in the usual way.  There is a great deal to be said for that.  However, it is clearly open to the Government to provide that the new rules should have immediate effect, as it has done.Faced with a choice of paying tax now at a certain, usually lower, rate or deferring it till the future at a higher rate, taxpayers will often bring forward taxable events in their control to secure the lower rate whilst it remains available.  This is called “forestalling”.  It is a logical and pragmatic response to tax increases which is explained by the “loss-aversion” principle of economic theory.Governments have periodically capitalised on the greater short-term tax receipts that inevitably come when taxpayers are told about a proposed tax increase before it takes effect – accepting that it comes at the cost of lower tax receipts overall in the longer term.  At other times, governments have acted to prevent forestalling by introducing tax changes with immediate effect on the announcement.Whether or not to allow forestalling is a political calculation.  Either way, there can be no principled objection to the Entrepreneurs Relief changes having immediate effect.Anti-ForestallingAs explained in the Explanatory Notes to the Entrepreneurs Relief draft legislation, the anti-forestalling provisions seek to render ineffective “…forestalling arrangements that aim to lock-in to the lifetime limits that existed before 11 March 2020 by making use of subsection 28(1) of TCGA 1992 (time of disposal and acquisition where asset disposed of under contract). Section 28(1) provides that where an asset is disposed of under an unconditional contract the time of disposal is the time the contract is made (and not when the asset is conveyed or transferred).”The planning in question typically triggered a taxable disposal under the “old” Entrepreneurs Relief rules (including the £10m limit) by setting up a new structure controlled by the taxpayer and then exchanging unconditional contracts in a sale with that structure, with completion to happen at a later date.  It was usually carried out where a sale to a commercial third party was in progress, but exchange was not going to take place before the Budget (and so would be taxed on the “new” rules – it was expected, on less favourable terms).  The timing of the completion of both contracts would be determined by the commercial readiness of the third-party purchaser to pay the sale consideration.  Completion on both sales would then happen simultaneously.  In essence, the planning introduced a second disposal and therefore a second event of charge.  Tax would be paid at the then-prevailing rates in respect of both occasions of charge.Insofar as relevant – and only as concerns unconditional contracts – s.28 TCGA 1992 provides:…where an asset is disposed of and acquired under a contract the time at which the disposal and acquisition is made is the time the contract is made (and not, if different, the time at which the asset is conveyed or transferred).This provision was first introduced with effect from 6 April 1971, in the Finance Act of that year.  It has been a constant feature of CGT legislation since that date.  It has been considered by numerous courts and tribunals – most notably by the House of Lords in Jerome v Kelly (Inspector of Taxes) [2004] UKHL 25.  And it was acknowledged in HMRC’s published guidance in its CGT Manual.So why introduce 2 1/2 pages of draft legislation – with retrospective effect – to undo it?As Lord Walker said in Jerome v Kelly (at [33]), what is now s.28 TCGA 1992 was “…intended to provide a simple rule to resolve what would otherwise be a highly debateable point” (i.e. on what date a disposal took place for CGT purposes if completion happened later than exchange of contracts, as is commonly the case).  s.28  was Government legislation, which was passed by Parliament with the intention explained by Lord Walker, and it remains as relevant today as it was when first introduced in 1971.  It is no loophole exploited by self-serving tax avoiders: it is instead a “simple rule” which has a clear effect that both taxpayers and HMRC should apply straightforwardly whenever it is relevant.RetrospectivityLegislation having retrospective effect – whether or not in tax – is the exception, not the rule, in English law.  This is because legal certainty is one of the cornerstones of the rule of law, and recognised as such since (at least) the times of Coke, Blackstone and Dicey.In his seminal book of essays, The Rule of Law, the great Lord Bingham quoted Lord Mansfield (in Vallejo v Wheeler): “[i]n all… transactions the great object should be certainty:… it is of more consequence that a rule should be certain, that whether the rule is established one way rather than the other.”  Lord Bingham himself commented: “[n]o one would choose to do business… in a country where parties’ rights and obligations were undecided.”In a 2015 report on “Tax and the Rule of Law”, the Law Society of England and Wales wrote:The Society is fully supportive of the government’s objective to discourage avoidance and change the economic incentives associated with tax avoidance but is keen to ensure that opinion is not obtained by measures that erode the rule of law…Retrospective taxation is a clear example of a breach of the rule of law. It is fortunately rare in the UK. Nevertheless it does happen.Any form of legislation that takes effect on a date before the parliamentary procedures have been completed should be avoided. There will be cases where, given the risk to the exchequer, any government needs to take steps to combat avoidance outside the usual fiscal events and the usual legislative timetable. Those cases should be kept to an absolute minimum.All this builds on classical economic and political theory.  In Wealth of Nations, Adam Smith wrote:”the tax which each individual is bound to pay ought to be certain and not arbitrary. The time of payment, the manner of payment, the quantity to be paid, ought all to be clear and plain to the contributor and to every other person.”Previous governments have respected – or at least paid lip-service to – the importance of legal certainty in the field of tax legislation.  In its “Tackling Tax Avoidance” policy paper of March 2011, the Conservative/Liberal Democrat coalition government committed to prior consultation in tax matters in its “Protocol on Unscheduled Announcements of Changes in Tax Law”:…changes to tax legislation where the change takes effect from a date earlier than the date of announcement will be wholly exceptional.The last government committed itself to this principle as recently as 6 December 2017 and it is unthinkable that the current Government, and its executive agencies (including HMRC), are unaware of it.Helpfully, Antony Seely (the policy specialist on taxation in the House of Commons Library) has recently written a Briefing Paper (Number 4369, 4 February 2020), which sets out in some detail the status of retrospective tax legislation in the UK, from the “Rees Rules” (which set out the circumstances in which retrospectivity – to the date on which a new policy was announced – might be appropriate in cases of tax avoidance) to the more recent loan charge.[DEEMING PROVISION – ROUGH WITH SMOOTH: HMRC v EXEC’ORS OF LORD HOWARD OF HENDERSKELFE]So on what basis does a desire to counter pre-Budget Entrepreneurs Relief planning qualify as “wholly exceptional” within the meaning of the 2011 Protocol?Does such planning constitute either “tax evasion or aggressive tax avoidance” (the phrase commonly used by the Government to indicate official disapproval)?  Is it tax avoidance at all?Tax Avoidance?(Provided, of course, that full disclosure is made to HMRC,) the planning described above clearly does not constitute tax evasion, which is essentially fraudulent conduct.But “tax avoidance” is a notoriously slippery concept, which is difficult satisfactorily to define.  HMRC defines “tax avoidance” as involving…bending the rules of the tax system to gain a tax advantage that Parliament never intended.It often involves contrived, artificial transactions that serve little or no purpose other than to produce this advantage. It involves operating within the letter, but not the spirit, of the law.In IRC v Willoughby [1997] STC 995 (HL), Counsel for HMRC formulated the distinction between “tax avoidance” and “tax mitigation” as follows:The hallmark of tax avoidance is that the taxpayer reduces his liability to tax without incurring the economic consequences that Parliament intended to be suffered by any taxpayer qualifying for such reduction in his tax liability. The hallmark of tax mitigation, on the other hand, is that the taxpayer takes advantage of a fiscally attractive option afforded to him by the tax legislation, and genuinely suffers the economic consequences that Parliament intended to be suffered by those taking advantage of the option.Giving judgment in that case, Lord Normand (giving the only reasoned opinion) accepted HMRC’s submission and said:Tax avoidance… is a course of action designed to conflict with or defeat the evident intention of Parliament.Although he would not have foreseen it at the time, Lord Normand’s dictum ought probably to be qualified by the addition of the following words: “…as apparent from the legislation enacted and in force at the time of the arrangements in question.”Nowhere in the Budget documents does the Government describe Entrepreneurs Relief planning of the type caught by the retrospective anti-forestalling measures as “tax avoidance”: the draft legislation refers only to “…obtaining an advantage by reason of the application of section 28(1) of TCGA 1992”.  This is surely because the planning does not answer to the description of “avoidance”, either on HMRC’s own definition or that in Willoughby.  The planning falls squarely into the category of “tax mitigation” described in Willoughby – after all, genuinely suffering the economic consequences intended by Parliament was central to the success of the planning!The draft legislation applies the retrospective anti-forestalling provisions where the parties intended to “[obtain] an advantage by reason of the application of section 28(1) of TCGA 1992.”The “advantage” referred to cannot exist in isolation: it must arise in comparison with an alternative hypothetical transaction. This is a commonly used test in tax law.  But given that the pre-Budget planning attacked by the anti-forestalling provisions relied only on the clear effect of legislation in force at the time, it is hard to see on what basis it gave rise to a tax “advantage”: tax was not deferred, it was brought forward; and the relief was not “increased” in any way, it just applied as it stood at the time.What Price The Rule Of Law?If HMRC considered that the restriction of Entrepreneurs Relief might cause a serious loss to the Exchequer, the retrospective anti-forestalling measures might, at least, make some practical economic sense, whatever the legal objections.So how much does the Office of Budget Responsibility estimate that the measure will raise for HM Treasury between the Budget and 6 April?  £5m.  No, that isn’t a typo.  Just £5m.  To put it another way, the Budget estimates that total public sector current receipts will amount to £873bn in 2020-2021.  Of which the retrospective effect of the Entrepreneurs Relief anti-forestalling measure in 2019/20 will contribute 0.0005%.So what price the rule of law?  About £5m, apparently.The pitifully small amount at stake emphasises just how disproportionate these retrospective anti-forestalling measures are.Human RightsIn R (oao Cartref) v HMRC [2019] EWHC 3382 (Admin), Cockerill J examined whether retrospective (or, in that case, retroactive) legislation bringing the “loan charge” into effect breached the human rights of taxpayers pursuant to Article 1 of Protocol 1 (“A1P1”) to the European Convention on Human Rights (and given effect in English law by the Human Rights Act 1998).In that case, Cockerill J held that the loan charge was compatible with A1P1 because it pursued a legitimate aim by means reasonably proportionate to the aim sought to be realised.But given the undoubted “tax avoidance” nature of the disguised remuneration arrangements to which the loan charge was directed, it is very hard to apply the principles in that case to the retrospective anti-forestalling measures in the Budget, which are entirely different in character.The disproportionality of the measure stands in stark contrast to the reasonableness of the planning and affected taxpayers would seem to have an arguable A1P1 case that the retrospectivity is unlawful.

In what The Times described on Saturday as “…the clearest sign yet that the relief is going to be curtailed by Sajid Javid, the chancellor, in March”, Boris Johnson reportedly commented to a group of women entrepreneurs in his Uxbridge constituency that the Treasury is “fulminating” against Entrepreneurs Relief.  The reason given was that it made “staggeringly rich” people “even more staggeringly rich”.The Prime Minister’s remarks give entrepreneurs and business owners who were expecting to capitalise on Entrepreneurs Relief a foretaste of a likely ethical pitch for scrapping or restricting the relief.  The difficulty for affected taxpayers is that in relative – and, often, absolute – terms, the Prime Minister and the Treasury are correct, which makes an ethical argument such as this so very hard to counter.  In the popular imagination, dry economic arguments as to the utility of Entrepreneurs Relief are unlikely to prevail against the unmistakable appeal to basic fairness implicit in the Prime Minister’s words.  And in tax, as with much else in politics, winning the PR battle is crucial.Notwithstanding the speculation in The Times as to the timing of any change to Entrepreneurs Relief, we do not yet know what the Chancellor is planning to announce in his Budget on 11 March.  As such, the nature of any proposed changes to – or the outright abolition of – Entrepreneurs Relief is still unknown.  In parallel, there is not yet any information about whether the Chancellor will increase the headline rate of CGT (which would amount to a double hit for business owners).Just as importantly, it is not clear when changes to Entrepreneurs Relief would take effect.  This makes it difficult for taxpayers to know how to react: they will want to defer action as long as possible if they can, but on the other hand they won’t want to miss out if change is coming soon.  All we can say for now is that the prudent business owner would not bet against changes being announced in the March Budget, to take effect from 6 April this year.Fortunately, there is still time before the Budget (and, especially, the new tax year on 6 April 2020) to take steps to “lock in” to the current favourable tax regime.  I have written about this here.One suspects that the Government will not object to taxpayers triggering CGT disposals in the current tax year, as this will accelerate much-needed tax receipts for the Exchequer.  It will be for each business owner to decide whether or not to do so.

The Budget date has been confirmed as 11 March 2020, which leaves under two months for entrepreneurs and business owners to take stock of rumoured changes to the CGT regime and to take action to “lock-in” to CGT rates at their current historic low.The Government’s General Election Manifesto committed to “review and reform” Entrepreneurs Relief, which had “not fully delivered on [its] objectives”.  Currently, Entrepreneurs Relief offers a reduced CGT rate of 10% to business owner-managers for qualifying disposals up to a lifetime limit of £10m.  This means the relief is worth up to £1m.  In turn, it means that the relief costs the Exchequer between £2bn and £3bn each year – far more than initially predicted.  That is why calls to reform or abolish the relief from within Government, from tax campaigners, and from other commentators have been swelling to their present crescendo.It is widely predicted that the Chancellor will wish to make eye-catching spending commitments in the Budget.  But his ability to do so is constrained given the state of the public finances, the Government’s commitment to balancing the budget, and the so-called “triple lock” in its Manifesto (i.e. a promise not to increase income tax, NICs or VAT).  This all means that an increase in CGT receipts – perhaps including restrictions on (or the abolition of) Entrepreneurs Relief – could provide the scope he needs to fund spending commitments elsewhere.One thing is almost certain: CGT rates will not reduce further on 6 April.Unfortunately for those affected, there is not yet any clarity on the likely nature of the Government’s reforms, nor on their timing.  We understand that the Government is considering all options, which might even include the wholesale repeal of Entrepreneurs Relief in its current form.  No further announcements are expected before the Budget, and the current regime could be withdrawn or amended as soon as 6 April 2020 (we consider an earlier change to be unlikely for practical and policy reasons).  This leaves little time to make best use of the existing £1m tax saving.Clients are already contacting us to ask for advice.  Fortunately, we have encountered these issues before and there are a number of solutions which can maximise the taxpayer’s ability to benefit from the current CGT regime whilst also minimising the downside risks for taxpayers – irrespective of the contents of the Budget.Every client’s circumstances are different and there is no “one size fits all” approach.  The issues involved are complex and cut across clients’ business affairs and their own personal tax and estate planning.  Because little time is available, we recommend that business owners should not delay and should seek advice on their options as soon as possible.

All parties have now published their election manifestos.  Each contains proposals which would affect business owners and entrepreneurs.I previously predicted that altering or abolishing CGT Entrepreneurs Relief would be fairly low-risk for an incoming Chancellor of the Exchequer.  It seems that is coming to pass.This update briefly summarises the key proposals of the UK’s three main nationwide parties relating to entrepreneurs and business owners.LIBERAL DEMOCRATSThe Liberal Democrats have least to say about Entrepreneurs Relief, not directly mentioning it at all.  Relevantly, they would abolish the CGT annual exemption (currently worth £12,000).  They would also introduce a new General Anti-Avoidance rule (presumably in place of the current General Anti-Abuse Rule) and increase Corporation Tax to 20%.LABOURLabour’s manifesto contains a great many tax proposals.  Taxpayers earning more than £80,000 a year are warned that they will face higher taxes overall.  The headline rate of Corporation Tax would increase to 26% by 6 April 2023.  Meanwhile, CGT rates would be harmonised with Income Tax and Entrepreneurs Relief would be abolished outright and Labour would “consult on a better form of support for entrepreneurs which is not largely just a handout for a small number of people.”CONSERVATIVESThe Conservatives comment that “some [tax] measures haven’t fully delivered on their objectives” and, as a result, they propose to “review and reform Entrepreneur’s Relief.”  They have not yet brought forward details of their proposed reforms, nor set out the intended timescale for implementation.  Separately, they intend to freeze Corporation Tax at its current rate of 19% (abolishing prior plans to reduce it to 17%).  On the other hand, the R&D Tax Credit rate is to increase to 13%.  In what they call a “triple tax lock”, they promise not to increase VAT, Income Tax or National Insurance during the Parliament.  In fact, they propose to increase the NI threshold to £9,500, with plans to ensure that the first £12,500 of earnings is completely tax-free (though with no timetable for that move).NEXT STEPSIn my last update, I reflected that changes to the prevailing tax regime would be unsettling for business owners.  But such changes are an inevitable part of the election process.  I advised that affected business owners – especially those looking to dispose of their businesses in the near future – should seek tax advice as soon as possible.  That advice still holds good.

In what is becoming a near-annual sport, there are again renewed calls for the restriction or outright abolition of CGT Entrepreneurs’ Relief.The latest high-profile support for the move comes from Sir Edward Troup, previously the head of HMRC, in response to a campaign launched by the Guardian newspaper.Such reports are always unsettling for business owners who are in the process of (or at least contemplating) the sale of their business.But how short are the memories of some of those who are contributing to this debate: far from being a give-away for the rich, when Entrepreneurs Relief was introduced in 2008, it represented a significant restriction on tax relief for business owners.  Previously, they had the benefit of business asset taper relief and retirement relief (un-capped by value), which gave far greater tax savings in many cases.This point alone does not answer bona fide and knowledgeable policy objections to the Entrepreneurs Relief regime, but those are – yet – few in number.Further agitation of this sort is likely to unsettle business owners who had assumed that they would benefit from Entrepreneurs Relief in due course.  So what are they to do?Irrespective of the colour of the next government, big new spending commitments seem likely.  These will need to be paid for one way or another.  Business owners should not make the mistake of believing that frequent complaints about Entrepreneurs Relief followed by inaction will continue forever.  Entrepreneurs Relief costs HM Treasury approximately £2.7bn a year – about three times more than intended when it was first introduced.  There are plenty of those in Government, as well as outside, who would like to bring that cost down or eradicate it altogether.Difficult though it might be for some business owners to accept, the political reality is that trimming or abolishing Entrepreneurs Relief is a relatively easy and low-risk option for a Chancellor in need of funds for high-profile new spending commitments.So prudent business owners would be wise to pre-empt possible changes to the regime where possible:If a business sale is in process and it is possible to exchange contracts before the new Government takes office on Friday 13 December, then it would seem preferable to do so;That said, CGT rate changes in the middle of a tax year are extremely uncommon and lead to a number of technical problems for HMRC and taxpayers, so on balance any change of the rules should be unlikely to take effect before 6 April 2020.  It follows that – unless the new Government takes unexpectedly radical action – business owners wishing to sell should endeavour to exchange contracts by that date;For those looking to sell in a longer timeframe, it was in the past possible to take steps to “lock-in” to Entrepreneurs Relief rates before a change in the law, but the law, HMRC practice, and the approach of the Courts and Tribunals have all moved on in recent years.  Anyone wishing to investigate this will need to take expert legal advice in good time before any change in the rules;Lastly, for those with no sale at all in prospect, the Entrepreneurs Relief regime is of little practical relevance to them.  There seems little they can do now other than hope for a benign tax system when they do eventually sell.