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Is Entrepreneurs’ Relief really ‘at risk’?

Posted by , Partner

You need to act now, says Iain Butler, a Corporate Partner in our Private Wealth team.

There was much uncertainty prior to the General Election at the end of 2019 about whether Entrepreneurs’ Relief (ER), which applies a CGT rate of 10% to the first £10m of qualifying gains (a potential tax saving of up to £1m), would continue to be available – a risk that was dismissed by many people following the Conservative victory and has not been ‘on the radar’ for many since then.

Now the issue is back on the agenda and there is speculation about whether this tax break for entrepreneurs is likely to be axed in the Budget Statement on 11 March, affecting many business owners and shareholders who might be planning for a future ‘exit event’.

The changes are still difficult to predict, but it’s likely that the rules relating to ER will be tweaked – or, at worst, ER could be scrapped in its entirety.

Does ER serve its purpose?

Many commentators have challenged ER as a tax incentive which is not properly supporting start-ups and successful scale-ups driven by individuals who are truly entrepreneurs and want to set up and build their businesses. It is also unclear whether its high cost to HMRC can be justified.

However, Stuart Crook, Partner at accounting firm Wellers, comments:

“In defence of ER, starting a business is often a very difficult and challenging journey. There has to be sufficient incentive to encourage would be tycoons to undertake what represents a significant personal financial risk. It’s an arduous and sometimes lonely existence. Why then shouldn’t there be ample reward for those who dedicate so much effort to wealth creation and socially useful activities? Tax breaks simply encourage people to commit to such ventures.”

Paul Morris, Tax Partner at Bishop Fleming, adds:

“Scrapping the relief would be a controversial move by the Chancellor as many business owners see it as a valuable incentive to grow their venture, particularly when linked in with Enterprise Management Incentive (EMI) shares which are used by many startup businesses as a way to recruit the right people.”

So what does this mean?

For those who are actively selling their business, or preparing to do so, there is a clear incentive to get those deals done sooner rather than later.

Whilst it is hoped by many that any changes will be subject to a proper consultation which would delay implementation, there is also a risk that changes could take effect immediately or, more likely, from 6 April 2020.

If a deal is not sufficiently advanced, tax planning options can also be considered which may be based on some form of reorganisation or succession strategy.

If you are thinking about how to proceed, it is important to engage with your lawyers and tax advisers quickly – there may be little time left.


Interested in entrepreneurship? Join us to hear from the founders of British luxury watch brand Bremont

As part of our ‘Inspiration’ series of talks by inspiring entrepreneurs, Giles English, co-founder with his brother Nick of award-winning Thames Valley based British watch brand Bremont will be talking about their flight to success on 12 February 2020 at Royds Withy King’s London headquarters at 69 Carter Lane, London EC4V 5EQ.

Time began for Bremont in 2002, when they embarked on a journey to make beautifully crafted pilot’s watches of exceptional quality. Inspired by a joint love of flying historic aircraft, watches and all things mechanical, their watches have been spotted worn by Bear Grylls, Orlando Bloom, Tom Cruise, Gordon Ramsey and many others in the public eye.

Now in partnerships with brands such as Jaguar, British Airways, Invictus UK, Giles will talk about how a big life-changing experience convinced the brothers to pursue what they enjoyed most: a life crafting beautifully engineered mechanical devices. He will also share the fascinating story of who the brand is named after and their exciting plans for the future.

 

To register your place or if you would like to find out more, please contact our Marketing team on:

020 7583 2222     Email usprivatewealth@roydswithyking.com

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