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Entrepreneurs’ Relief: Use it or lose it?

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Boris Johnson’s recent comments that Entrepreneurs’ Relief helps the ‘staggeringly rich’ to become even richer may be a nice sound bite for the electorate but for many SMEs, where owners have ‘risked it all’ to start a business, a rolling back of the relief may well feel like a betrayal.  Owning and running a business has never been harder; rent, rates, and employment costs continue to rise; competition and globalisation impact on margins; and uncertainty, whether political, economic, or environmental, has never been more certain.  

Entrepreneurs’ Relief, as the name suggests, was designed to encourage entrepreneurship in individuals and reward those who work hard to create wealth. The effectiveness of the scheme is subject to much debate but there will certainly be many owners who do not class themselves as ‘staggeringly rich’ but who will have been looking forward to the reward Entrepreneurs’ Relief promised for the years of hard work and stress which they have been through.

So, what qualifies you to benefit from Entrepreneurs’ Relief, what are its benefits and what is expected to happen to the relief?

Entrepreneurs’ Relief: Simplified Pre-Conditions

For two years prior to the disposal a shareholder will have to:

  • have been an employee or officer of the company, hold 5% of the voting share capital and be broadly entitled to 5% of the dividends, capital and sale proceeds; and
  • the company must have been trading (not an investment vehicle).

Entrepreneurs’ Relief: Simplified Benefits

  • A Capital Gains Tax rate of 10% on sale or on capital distribution from a solvent liquidation

Entrepreneurs’ Relief: Changes and Timing

  • May be withdrawn, changed, or phased out in the budget scheduled for 11 March 2020
  • Possible that the change will have effect from 6 April 2020

Entrepreneurs’ Relief: Actions

For those considering the winding up of their business using a solvent liquidation process, otherwise known as a Members’ Voluntary Liquidation (MVL), capital distributions from the liquidation will need to be declared and paid prior to the effective date of any change. If you or your clients are considering the use of an MVL, please do not hesitate to contact Henry Page or any of Mercer & Hole’s Corporate Restructuring partners.

Should you require any further information about the applicability of Entrepreneurs Relief and how it may be of benefit to you, please do not hesitate to contact David Hadley.

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