PLEASE NOTE: Entrepreneurs Relief changed on 11th March 2020. Please see updated information via our latest blog.
One of the strongest attributes of any successful business owner is being willing and able to prepare for and adapt to change – and change has certainly been the theme of 2019 as far as the political and economic landscape is concerned.
At the time of writing this blog, U.K. business owners are still waiting to learn the results of the next general election. This will shape the direction of Brexit too, so in 2020 the rollercoaster shows little sign of slowing down.
As corporate finance consultants who help people sell their business, entrepreneurs have been asking us what might happen to Entrepreneurs Relief as we enter a new decade – and face an unprecedented development in European political history – under a new government.
Review, reform or slash?
Speculation among the business community has been that if the Conservatives win the election, Entrepreneurs’ Relief may or may not change, but if Labour triumph it could alter dramatically. An article in The Telegraph on 24th November 2019 reported that:
“Conservative Party plans to review tax breaks for entrepreneurs have set alarm bells ringing across the investment community, who warned an overhaul of the rules could hamper the Britain’s booming start-up sector. In the party manifesto, released on Sunday, the Conservatives said they would be reviewing and reforming Entrepreneurs Relief, which allows business owners to pay a lower rate of capital gains tax when they sell a business compared to the normal rate.
“It is a tax break which previously had been championed by the Conservative Party and has been extended under previous governments. However, questions over its future have arisen during this election race, with a number of political parties, including Labour, laying out plans to slash it.”
The Telegraph goes on to quote Steve Chandler, from Notion Capital, whose company MessageLabs was sold to US software giant Symantec in 2008, who says:
“We will have to see what ‘review’ means but likely tighten and possibly abolish. Whilst I’m open to tightening requirements to ensure it does what was intended, anything that curtails entrepreneurial risk appetite at that end of the market is a negative in my view.”
Britain remains an open environment for foreign investors
Nobody can predict the future but we do encourage you to stay positive because it’s still a good time to sell your business, especially if you’ve taken careful measures to prepare. Earlier this year, we told you Why the world still wants to buy British businesses despite Brexit uncertainty, and according to recent report by venture capital firm Atomico, British firms are still attracting the most cash in Europe.
What is Entrepreneurs Relief?
Need a recap on what Entrepreneurs’ Relief is all about?
- Entrepreneurs’ Relief is a benefit that was introduced in 2008
- It allows tax of just 10% to be paid on a lifetime allowance of £10,000,000 when a business (or part of it) is sold off
- For a business to be eligible, a shareholder must have a 5% or more shareholding, and have been involved for 2 years or more with a company as an employee or director
If your taxable proceeds were £5m and you took them out as a director through dividends using the current tax rates, you’d be paying approximately £1.9m in tax. Whereas, if you qualified for Entrepreneurs’ Relief, you would save £1.4M in tax at the reduced rate of 10%. This benefit could allow you to maximise the overall value you achieve when selling your business and considerably improve your personal wealth.
It’s important to be aware that Entrepreneurs’ Relief does have limits. For full details of the current eligiblity criteria and exclusions, please visit https://www.gov.uk/entrepreneurs-relief.
Expert corporate finance advice is crucial
The levels and bases of taxation and reliefs from taxation can change at any time and the value of any tax relief depends on your individual circumstances, too.
If it stays, Entrepreneurs’ Relief could offer potential benefits when selling your business, but remember it is part of a much bigger picture that demands a skilled understanding of the latest legislation and many other variables. Therefore, you’re strongly advised to seek professional help before beginning any business sale process.
So, if you’re thinking of selling and considering the tax implications – now may be good time to review the saleability and the potential value of your business with an experienced advisor.
Entrepreneurs Hub is a friendly corporate finance company that provides expert guidance to business owners across the UK on how to sell a business – the smart way. Contact us in confidence to find out more.