Budget 2020: Entrepreneurs’ Relief

Matthew Hall profile image

Matthew Hall, Partner

Matthew is Head of Tax Services at Wilkins Kennedy. He has been a Partner at the firm since 2005 having previously been with a Top 10 practice.

March 11, 2020

 

In possibly the worst kept secret of the 2020 Budget, the Chancellor had his sights firmly set on “reviewing” Entrepreneurs’ Relief (ER), and a “sensible reform”, rather than complete abolition, is what we were given.

Although reducing the lifetime limit down from the previous £10m down 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 takes effect from today, 11 March, so if you had not done your deal by this morning, you were too late. Certain clever wheezes by which ER was crystallised before today have also been stymied by anti-avoidance measures included in the draft legislation. No changes to the newer Investor’s Relief have been announced.

But 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.”

Interestingly, 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%. An entrepreneur today then, rather than selling his >£1m trading business and stimulating the economy may be best advised to hold on to his business until he dies, as he will potentially pay no IHT and get a tax-free uplift on death, the one thing, other than taxes, none of us can avoid.

If you would like to discuss any of the above changes or other measures announced in today's Budget, please contact a member of our tax team.

 


Related insights and events

Newsletter Sign-up