"Entrepreneurs' Relief costs the Treasury approximately £2.4bn per annum."

So here it is, we now know the Government’s plan in relation to Entrepreneurs’ Relief. In light of Coronavirus the Entrepreneurs’ Relief announcement might get lost within the headlines, and some would say rightly so. But for those of you interested, here it is.

Our clients have been increasingly asking for guidance since “review and reform” of Entrepreneurs’ Relief appeared in the Conservative manifesto in November 2019. Speculation has wavered between total and immediate and abolition of the relief to the announcement of a “review” with no immediate changes – and everything in between. In honesty, where it was going to go, was always anyone’s guess.

A levelling up agenda?

The relief costs the Treasury approximately £2.4bn per annum. Whilst a large number, abolishing the relief is not going to make a significant difference to the country’s balance sheet. Entrepreneurs’ Relief has always been seen as more of a political issue, rather than a fiscal one. The question had always centred on how the Conservative government wanted to use this relief as part of its “levelling up” agenda.

Entrepreneurs’ Relief offers a reduction to 10% tax on gains on the sale of qualifying business assets, with a lifetime limit of £10m per qualifying individual. Without this relief, gains would be taxed at 20% thus this relief offers up to £1m per individual.

A benefit for the rich?

A growing view is that this is a benefit for the already rich. However, the reality is that at the marginal level Entrepreneurs’ Relief has facilitated many hard-working business owners to be able to sell and retire with fair reward for their hard work, creation of jobs and their contribution to the country’s GDP.

The Chancellor of the Exchequer has today reduced the lifetime limit to £1m making the relief worth £100,000 – a 90% reduction in the benefit. Our view is that this change now means that many business owners can no longer afford to sell. They will need to work longer, and harder without fair recognition for their contribution to the economy. With extending life expectancy and increasing cost of living in a low investment return environment, the cost of retirement is only getting higher.

Did the Chancellor get it right?

Unfortunately, on this point we think that the Chancellor has got it wrong. If it was us? We would have reduced the limit to £5m per household, rather than per individual. This would have allowed those entrepreneurs that had worked hard to retire with reasonable provisions for themselves and their families aided by this tax relief.

We’ll let the Chancellor know our views differ from his and we will see if we can change his mind. Watch this space.

We work with growing UK SMEs and small-cap PLCs that have funding needs in excess of £2m and regularly approaching £100m. Our clients’ needs will typically be for sophisticated finance products such as cash flow based lending or private equity investments. Our value lies in helping clients access funding that relies on confidence in future trading and cash flows. For a confidential, independent, no obligation discussion on the funding options available click the 'Let's chat' button.