The Prudential Technical team look at the reduction in the Entrepreneurs’ Relief (ER) lifetime limit for Capital Gains Tax (CGT)
Entrepreneurs’ Relief provides for a lower rate of CGT (10%) to be paid when disposing of all or part of a business where certain criteria are met. Prior to the announcement, the availability of Entrepreneurs’ Relief was subject to a lifetime limit of £10 million of qualifying gains.
The Budget announcement in March 2020 reduced the lifetime limit from £10 million to £1 million for qualifying disposals made on or after 11 March 2020.There are special provisions for disposals entered into before 11 March 2020 that have not been completed.
According to the Government, this change ensures that over 80% of those using the relief will be unaffected.
Those who are affected are individuals who dispose of all or part of their business; individuals who dispose of shares in their personal company; and trustees who dispose of business assets, with gains above the new lifetime limit.
The changes made to Entrepreneurs’ Relief increased the amount of tax paid for total lifetime ‘business’ gains over £1 million.
Advisers and accountants can work together to extract value from these businesses prior to sale, for example through increased employer pension provision.
Financial advisers often encounter the potential availability of Entrepreneurs’ Relief when dealing with corporate investment cases.
Companies must be ‘mainly’ trading in the 24 months prior to sale if Entrepreneurs’ Relief is to be potentially available.
HMRC apply a 20% benchmark and therefore any investment activities must be kept within this to qualify for relief.
Again, this is an area for collaboration between advisers and accountants.