The mounting speculation that Entrepreneur’s Relief is likely to be abolished by the government has been magnified by recent comments made by Boris Johnson. Price Bailey’s advice to shareholders looking to liquidate their businesses, in order to withdraw their capital, is to act quickly in order to make sure they are able to do so in the most tax-efficient way.
The 2019 Conservative Manifesto stated that whilst some measures to support entrepreneurs, such as R&D tax credits, had worked they also believed “some measures haven’t fully delivered on their objectives”, with the spotlight falling on Entrepreneur’s Relief.
Following the Prime Minister’s comments, many commentators believe that Entrepreneur’s Relief could be abolished with immediate effect by the Chancellor, Sajid Javid, on 11 March 2020, as part of the Budget announcement.
In simple terms, Entrepreneur’s Relief was designed to incentivise entrepreneurs to set up and grow UK businesses. The relief affords business owners a reduced 10% Capital Gains Tax (CGT) rate on lifetime gains of up to £10m resulting from business disposals, subject to meeting certain criteria. However, it is understood that company owners and investors saved £2.8bn on tax bills as a result of the relief in 2018, leading the Prime Minister to state that the tax break is only serving to make the “staggeringly rich” even richer.
The relief is a valuable incentive to entrepreneurs setting up and developing high-potential businesses. However, company owners wishing to dispose of their solvent company via a Members’ Voluntary Liquidation (MVL) have also historically been incentivised by their eligibility to benefit from Entrepreneur’s Relief.
Whilst abolishment is not yet guaranteed in the 2020 Budget, we can expect that there will be a significant tightening of the relief to reduce the Government’s tax burden. Therefore, those considering an MVL are urged to take immediate advice.
This post was written by Stuart Morton, Senior Manager at Price Bailey and Licensed Insolvency Practitioner. If you are considering an MVL and are concerned about how changes may affect you, please contact Stuart using the form below.
We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.