Entrepreneurs' Relief and the 2020 Budget

Entrepreneurs’ Relief (ER) was scaled back significantly in the Budget yesterday.

To summarise, the current annual £10m lifetime allowance is reduced to £1m for business or share disposals made on or after 11 March 2020; and also on some limited disposals made before 11 March 2020 if the disposal had not completed or was tax-motivated.

There had been some speculation that ER would be abolished completely but Sunak said: ‘We need more risk taking and creativity, so we are not going to fully abolish entrepreneurs’ relief”. His rationale being that smaller entrepreneurial business owners will continue to benefit. HMRC internal figures apparently show that over 80% of ER claimants should be unaffected by the changes.

Nevertheless many owners of larger business will no doubt be feeling disappointed with the changes.  It is worth reflecting though that:

• ER relief can still deliver £100,000 of tax savings;
• The £1 million lifetime limit is available  per individual so family businesses should ensure they take advice to ensure that all eligible family members can claim the tax savings;
• The full (non-ER) tax rate on the sale of a business remains at 20% - which is still significantly lower than the top rate of income tax of 45%. Selling a business may still remain the most tax-efficient option.

For any further information on Entrepreneurs' relief please get in touch with our business tax team by submitting an enquiry.