In the Budget yesterday, Rishi Sunak, announced the lifetime limit for Entrepreneurs’ Relief (ER) would be reduced from £10m to £1m.
Although reducing the lifetime limit to £1m will affect some bigger entrepreneurs dramatically, the review was remarkably narrow in its focus, with no other qualifying criteria subject to any change. That said, the relief has already been amended in recent years with an extended 2-year holding period and additional capital entitlement conditions already in operation.
The change to ER took effect from 11 March, so if you had not completed your deal by yesterday morning it was too late. Certain clever wheezes, but not all, by which ER was crystallised before today have also been hindered by anti-avoidance measures included in the draft legislation. No changes to the newer Investors’ Relief have been announced.
Has the Chancellor achieved his aim?
The Government was compelled to make changes as ER was “expensive, ineffective and unfair” but also necessary to encourage “genuine entrepreneurs who do rely on the relief”, stimulating “risk-taking and creativity.”
Despite the Office for Budget Responsibility’s comprehensive report on the subject, Inheritance Tax (IHT) was not mentioned at all in this Budget, and there had been some discussion over whether the criteria for trading businesses to qualify for Business Relief for IHT ought to be aligned with those for ER and Capital Gains Tax (CGT). In fact, Business Relief was left unchanged, such that an ER qualifying business will likely also qualify for IHT relief at up to 100%.
If you would like to discuss these changes and how they may impact you and your business, please contact your usual Campbell Dallas advisor or:
Partner and Head of Tax
0141 886 6644
The information in this blog should not be regarded as financial advice. This is based on our understanding in March 2020. Laws and tax rules may change in the future.