The Chancellor Rishi Sunak has slashed the lifetime level of entrepreneurs’ relief but stopped short of getting rid of the widely-criticised tax break completely.
Effective immediately, the lifetime limit on the amount of the relief individuals can claim falls from £10m to £1m — a move the chancellor said will save £6bn over five years. The relief allows business owners of at least two years to pay capital gains tax (CGT) when they sell at a rate of 10 per cent rather than the normal 20 per cent.
The change in the life limit is expected to affect 9,000 people. The government said more than 80 per cent of those using the relief would be unaffected by the change and the decision was based on evidence that the high threshold had done little to incentivise entrepreneurial activity, with benefits accruing to a small number of rich taxpayers.
Mark Levitt, partner at tax advisory firm Blick Rothenberg, said: “With the cut to entrepreneurs’ relief in the budget, business owners should consider paying more into their pensions given the relaxation of reliefs for those earning £200,000. CGT is still lower than income tax and vendors will need to ensure that they have fully utilised their entrepreneurs’ relief (where appropriate) with family shareholders."
Helen Clarke, tax partner at Irwin Mitchell said the relief limit of £1m is "restricted as predicted, but perhaps in simpler terms than it might have been." She adds that a 90 per cent cut represented a big loss for those entrepreneurs who will see their rate of CGT double. "Many serial entrepreneurs will already have used their £1m allowance, and so will be most impacted by this change.”
The Chancellor said he had listened to representations for the tax break to be scrapped completely, but said risk-taking by entrepreneurs should be encouraged.
"We need more risk taking and creativity in this county," he said. Mr Sunak said he would use the £6bn saved to cut other business taxes.
