Shorter Reads

Calls to Abolish CGT Entrepreneurs Relief – Should Business Owners Be Worried?

With renewed calls for the restriction or abolition of CGT Entrepreneurs’ relief, James Austen  advises business owners on how they can prepare for possible changes.

1 minute read

Published 11 November 2019

Authors

Share

Key information

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.
Related latest updates
PREV NEXT

Arrow Back to Insights

Shorter Reads

Calls to Abolish CGT Entrepreneurs Relief – Should Business Owners Be Worried?

With renewed calls for the restriction or abolition of CGT Entrepreneurs’ relief, James Austen  advises business owners on how they can prepare for possible changes.

Published 11 November 2019

Associated sectors / services

  • Tax disputes & investigations

Authors

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.

Associated sectors / services

  • Tax disputes & investigations

Authors

Need some more information? Make an enquiry below.

    Subscribe

    Please add your details and your areas of interest below

    Specialist sectors:

    Legal services:

    Other information:

    Jurisdictions of interest to you (other than UK):

    Article contributor

    Enjoy reading our articles? why not subscribe to notifications so you’ll never miss one?

    Subscribe to our articles

    Message us on WhatsApp (calling not available)

    Please note that Collyer Bristow provides this service during office hours for general information and enquiries only and that no legal or other professional advice will be provided over the WhatsApp platform. Please also note that if you choose to use this platform your personal data is likely to be processed outside the UK and EEA, including in the US. Appropriate legal or other professional opinion should be taken before taking or omitting to take any action in respect of any specific problem. Collyer Bristow LLP accepts no liability for any loss or damage which may arise from reliance on information provided. All information will be deleted immediately upon completion of a conversation.

    I accept Close

    Close
    Scroll up

    Find out about Business

    Find out about Dispute Resolution

    Find out about Individuals & Families

    Find out about Real Estate

    We are Collyer Bristow - The law firm for those that
    value individuality, creativity and collaboration.

    Legal & Pricing info Regulatory InformationAccessibilitySitemapPricing and service information

    Read our latest article: Is working from home actually more productive?

    Listen to our latest podcast: Jumping across the Atlantic?

    Read our latest article: Regulators respond to government’s ‘pro-innovation approach to AI regulation’

    Read our latest article: Lawyers react as FCA promises ‘prompt action’ over politically exposed persons review

    Listen to our latest podcast: Decision making at board and shareholder level

    ExpandNeed a hand?Toggle

    < Back to menu

    I have an issue and need your help

    Scroll to see our A-Z list of expertise

    Get in touch

    Get in touch using our form below.



      Business Close
      Private Wealth Close
      Hot Topics Close