Out-Law / Your Daily Need-To-Know

UK Budget 2020: Entrepreneurs' relief lifetime limit cut to £1m

Out-Law News | 11 Mar 2020 | 5:19 pm | 1 min. read

Entrepreneurs' relief will not be scrapped, although the lifetime limit has been cut from £10 million to £1m, the UK's chancellor confirmed in today's Budget, despite widespread rumours that the controversial relief would be abandoned.

“After months of speculation the chancellor has tried to keep everyone happy with his changes to entrepreneurs’ relief.  However, the dramatic cut in the lifetime limit will be big disappointment for many. But, with a potential tax saving of £100,000 the relief will still be of benefit to business owners who are able to benefit from the full £1m," said Peter Morley, a tax expert at Pinsent Masons, the law firm behind Out-Law.

The changes will apply immediately for disposals from today and the £1m limit includes previous disposals which benefited from the relief, so if an entrepreneur had already made disposals of £1m or more they will have exhausted the limit. The change is being introduced in response to evidence that the relief has done little to incentivise entrepreneurial activity and that most of the benefit accrues to a small number of very affluent taxpayers, the chancellor said. The government predicts that the change will not affect over 80% of those using the relief.

Morley said that "the targeted use of the anti forestalling rules is interesting." and that they showed that "HMRC have clearly been aware that there have been a number of planning techniques being proposed by advisers in recent weeks and have introduced specific and targeted anti forestalling rules to ensure that those who have entered into transactions to try and lock into the old rules will fail. Individuals who have undertaken any such planning are advised to seek further advice."

Morley said: "Consistent with the message that entrepreneurs’ relief was not encouraging investment, the lifetime limit for investors’ relief has not been changed. Similar to entrepreneurs’ relief, investors' relief allows a 10% rate of tax on a £10m of lifetime gains. This can be accessed in additional to entrepreneurs’ relief. It focuses on arms-length investments held for a minimum of three years. Business angels may wish to consider whether they can fall within the conditions for relief as an alternative way of mitigating their tax rates."

Entrepreneurs' relief reduces the capital gains tax payable by individuals on gains realised on disposals of shares in companies from 20% to 10% subject to a number of conditions. For the relief to apply the individual selling the shares must be employed or hold an office in the company or group in which the shares are being sold. Various tests relating to the ownership of the shares also need to be met.