With the Labour party promising to abolish it altogether and the Conservative party manifesto promising to review and reform it, is this the end of the road for entrepreneurs’ relief?
Entrepreneurs’ relief is the capital gains tax relief which reduces the rate of capital gains tax down to just 10% on the first £10m of gains on selling qualifying trading company shares or trading businesses.
Quite what “review and reform” means is not yet clear, but what is clear is that it is considered to be a tax measure which has not fully delivered on its objectives, those objectives being to encourage and reward entrepreneurship.
Whether this means a wholesale abolition or just a reshaping to focus more tightly on true trading company and business disposals by entrepreneurs and stop its use on sales of land for development and other perceived abuses has not yet been clarified.
The Labour party do not intend to stop at entrepreneurs’ relief, they are talking about abolishing capital gains tax altogether and subjecting capital gains to income tax at the individual’s marginal rate of tax – so up to 45%, compared to the current 20% or 28% (for residential property sales) capital gains tax rates.
So if you are a business owner, what can you do?
The answer very much depends on whether you are planning to sell the business in the near future. If you are, then it makes sense to consider how you might crystallise a capital gain now and lock in your entitlement to pay 10% tax on the gain.
If you don’t intend to sell in the next couple of years, then the idea of crystallising a gain now and paying tax becomes much less appealing.
Under current rules, it is possible to keep your options open for a couple of years, but that means carrying out some planning now and it is important that any such structuring fits in with your commercial, personal financial and family succession objectives.
If you would like to find out more about this, please contact us as soon as possible.