Entrepreneurs’ Relief: outlook changing
Before the Budget, there were fears that it might be scrapped altogether. It wasn’t. Entrepreneurs’ Relief (ER) lives on, but with a new name – Business Asset Disposal Relief – and a new, lower lifetime limit.
ER, as we will call it for one last time, is a capital gains tax (CGT) relief available not just to company shareholders, but to owners of unincorporated businesses. It has been the relief, par excellence, for someone looking to dispose of all, or part of, a business and extract a capital sum, for example on retirement. Applying to gains on disposals of shares, or securities in a trading company, it gives access to a niche 10% rate of CGT, rather than 20%. In some circumstances, it can be used for disposals of assets such as land and buildings used by a company but owned by an individual. ER can also reduce CGT paid on disposals of qualifying shares from an Enterprise Management Incentive scheme. ER is subject to a lifetime limit, hitherto £10 million.
Budget 2020 brings a new lower lifetime limit of £1 million. This has immediate effect, applying to qualifying disposals made on or after Budget day, 11 March 2020. The value of ER claimed for qualifying gains in the past will contribute to the new lifetime limit, and this will now need to be taken into account when assessing eligibility for any future claim. The new date is a cliff edge: there is no period of transition. The new limit can also apply where a business ceased trading before 11 March 2020; or the gain is a deferred gain that accrues on a chargeable event on or after 11 March 2020.
Despite the change, ER remains a vital part of the exit strategy for business owners. Ensuring availability of ER has always depended on paying close attention to the rules, and this is unchanged. In the current volatile economy, it may be of particular relevance to those reshaping their plans for the future.