Entrepreneurs’ Relief: Budget 2020

entrepreneurs'-relief-tax-break

Chancellor Rishi Sunak announced a cut in lifetime limit on entrepreneurs’ relief from £10m to £1m.

This relief on capital gains tax (CGT) costs the Treasury £ 2.6bn an entrepreneurs’ year. Entrepreneurs’ relief, a tax break mostly benefits wealthy business owners.

Rishi Sunak significantly scaled back the relief, which halves the capital gains tax paid when people sell their businesses, with immediate effect.

This will apply to qualifying disposals made on or after 11 March 2020. Also, to certain disposals made before 11 March 2020.

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See also https://careaccountancy.co.uk/the-budget-2020-predictions-and-expectations/

Why did the Chancellor announce changes to Entrepreneurs’ Relief?

Sunak said: ‘We need more risk-taking and creativity, so we are not going to fully abolish entrepreneurs’ relief. However, we will reduce the lifetime limit from £10m to £1m. 

‘This will save £6bn over the next five years. We will invest this money straight back into innovative businesses and technology.’

Sunak described the tax relief as expensive, ineffective and unfair with three-quarters of the relief going to just 5,000 people. He did not want to discourage genuine entrepreneurs’, and therefore reduced the allowance rather than removing it completely.

He said that the reduction in the lifetime limit over will not affect 80% of taxpayers. Gains above the lifetime limit will be charged at the standard 20% rate.

Mike Cherry, the chairman of the Federation of Small Businesses praised it as a “sensible compromise”.

See also https://care4properties.co.uk/

STARTUPS-ENTERPRISES

According to Philip Salter, founder of The Entrepreneurs Network:

‘Cutting the lifetime limit will enable startups to continue to attract talent, but reduce the incentive for some foreign-born founders to base their companies in Britain.’ 

Les Cameron, pensions and tax expert at Prudential UK, said:

“The changes to entrepreneurs’ relief will increase the amount of tax paid by businesses sold at a profit of over £1m.

“We should see advisers and accountants working together to extract value from these businesses before the sale.”

David Bywater, KPMG Private Enterprise tax partner, said:

‘Investors and businesses owners will be somewhat relieved that the announcement did not go as far as many had suggested in completely abolishing Entrepreneurs’ relief.’

Visit also https://careaccountancy.co.uk/tax-news-in-uk/ for details about current tax affairs.

The Chartered Institute of Personnel and Development welcomed the increase and said:

“Small firms and charities would benefit, as they had seen higher payroll costs due to the rise in the national minimum wage.”

The Resolution Foundation think tank has criticised Entrepreneurs’ Relief for being expensive for the public, regressive and ineffective.TRF focuses on research on improving the living standards of those on low-to-middle incomes.

It has calculated that scrapping it could generate £3bn for the Treasury. But this does not count on the impact that the scheme has in encouraging entrepreneurship and thus creating wealth.

Sunak-Budget 2020-announcement

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