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Pre-Budget CGT Planning: Time to Act for Entrepreneurs and Business Owners

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Published 13 January 2020

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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  No further announcements are expected before the Budget, and the current regime could be withdrawn or amended as soon as 6 April 2020 (we consider an earlier change to be unlikely for practical and policy reasons).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.

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Shorter Reads

Pre-Budget CGT Planning: Time to Act for Entrepreneurs and Business Owners

Published 13 January 2020

Associated sectors / services

  • Private Wealth
  • Tax & Estate Planning
  • Trusts

Authors

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.

Associated sectors / services

  • Private Wealth
  • Tax & Estate Planning
  • Trusts

Authors

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