If you are thinking about selling your business, you may need our help as a matter of urgency.
In just under a month’s time, the Chancellor of the Exchequer, Rishi Sunak, will make his first Budget statement to the House of Commons outlining the state of the economy and the Government’s proposals for changes to tax policy for the 2020/21 tax year.
And among the possibilities could be the axing of Entrepreneurs’ Relief which could have a significant impact on those considering an Entrepreneurs’ Relief disposal.
Benefits under the current rules
Currently, Entrepreneurs’ Relief gives individuals a 10% rate of capital gains tax on lifetime gains of up to £10million raised from business disposals – as long as certain qualifying conditions are met.
The criteria include:
- the shares have been held throughout a period of at least two years
- the individual selling the shares must hold at least 5% of the company's ordinary share capital, at least 5% of voting rights and be beneficially entitled to either;
the individual must be an officer or employee of the company; or have acquired their shares by way of an Enterprise Management Incentives (EMI) scheme.
- at least 5% of distributable profits and 5% of the company’s assets available for distribution on a winding-up; or
- 5% of the proceeds if the whole of the ordinary share capital of the company were sold for market value.
What can we expect?
With the Budget on March 11th on the horizon, entrepreneurs should be aware that in the Conservative party’s 2019 General Election manifesto, it expressed strong support for entrepreneurship. The Conservatives went on to say that ‘some measures haven’t fully delivered on their objectives so; we will review and reform Entrepreneurs’ Relief’.
If the review and reform come to fruition, any changes to the Entrepreneurs’ Relief would apply from April 6th, 2020 – if not from the Budget date itself.
So, what sort of reforms could be on the horizon?
The honest answer is that we do not know for certain but there are many possibilities including:
- Replacement – almost certainly be replaced with some sort of alternative tax relief for entrepreneurial activities
- Restrictions on businesses which qualify
- Increasing the shareholdings required to qualify for the relief from 5% of the involvement of the individuals in the business
- Increasing the holding period for the shares in order to qualify for the relief, although this was already doubled in 2019 to two years
- Reducing the lifetime maximum of the £10million limit.
The only thing we can be reasonably sure of is that any changes are likely to see a lessening or tightening – as opposed to an extension or loosening – of the relief.
And that could mean bad news for any business owner looking to sell.
But what does this mean for you?
While there is still no certainty that changes will be made or when, if you are concerned that any change to the relief will adversely affect you, now is the time to act.
If you are in the process of a sale – or thinking about selling in the short term – please contact us on 01473 659777 or email our Head of Taxation, Andrew Diver, at firstname.lastname@example.org