Entrepreneur’s Relief: The Changes

Before the March Budget, there were growing fears that Entrepreneur’s Relief (ER) might be scrapped altogether. For many, a relief that it wasn’t. Entrepreneur’s relief survives, but with a different name – ‘business asset disposal relief’, with a much lower lifetime limit.

The lifetime allowance has now been dramatically scaled back from £10m to £1m as of immediate effect, applying to disposals on or after 11 March 2020.

What is Entrepreneur’s Relief?

In the UK, entrepreneur’s, or people who start their own businesses, can claim ER (as we shall call it for the last time) if they go on to sell said business.

The scheme, introduced 12 years ago by former chancellor Alistair Darling, allows company founders to pay a discounted rate of 10% when they sell their business, compared to the 20% rate typically applied.

The incentive has been under the microscope for a long time, as concerns grew that it is costing more than was originally planned and did not entirely deliver on its objective to act as a catalyst for investment in and growth of entrepreneurial businesses.

Alongside the headline restriction of ER, many anti-forestalling measures have been introduced to counteract any actions taken by taxpayers from 6 April 2019 to benefit from the previous lifetime limit of £10million. These rules apply in situations where certain conditions are met.

There are no transitional rules for disposals that take place after 11 March 2020, including where:

  • the business ceased to trade prior to 11 March 2020;
  • the disposal is ‘associated’ with an earlier disposal; or
  • the gain is a deferred gain that accrues on a chargeable event on or after 11 March 2020.

In the current volatile economy and during these very unprecedented times, it could be of particular relevance to those who want to reshape their plans for the future.

If you wanted to have a look at restructuring your companies or even to discuss alternative options, please do get in touch, we are more than happy to help.

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