There has been a lot of speculation about what direction the Budget will lead into when announced on 11 March by newly appointed Chancellor, Rishi Sunak.
Looking at corporate and business taxes below are my predictions on how the forthcoming Budget could affect Entrepreneurs’ Relief.
Successful entrepreneurs who sell shares in their own companies are currently incentivised by a reduced rate of capital gains tax at 10% (rather than 20%) on the disposal. This is broadly subject to the shareholding being at least 5% or more and meeting certain other criteria including being an employee or officer of the company and holding the shares for 2 years. This lower rate of capital gains tax can be obtained on up to £10 million of entrepreneurial capital gains during a lifetime. The former chancellor, Mr Javid, had announced that Entrepreneurs’ relief was firmly in his sights for reform at the Budget but it is as yet unclear whether his successor will follow suit.
A commonly held view is that were changes to be implemented, Entrepreneurs’ relief would remain in some form but may be restricted. This may be achieved by reducing the extent of the lifetime limit or tightening the criteria so that a higher percentage ownership of shares have to be held for a longer period prior to disposal.
Any change to entitlement to Entrepreneurs’ Relief may also have an impact on those individuals who hold options under the Enterprise Management Incentive Scheme (EMI). Disposals of shares acquired under EMI options are also potentially within the 10% Entrepreneurs’ Relief regime regardless of whether the 5% test is met.
If you need advice on Entrepreneurs’ Relief, EMI, designing option schemes or share valuations please contact me.