Is the clock ticking ?
Speculation is always rife before a Budget as to what the Chancellor’s speech might contain. This year, one of the front runners is the potential abolition of entrepreneurs’ relief. Indeed, the Sunday Times reported on 1 March 2020 that the new Chancellor, Rishi Sunak, will scrap entrepreneurs’ relief to ‘fund a spending spree in the North of England’.
If this prediction does turn out to be true, what does it mean for those who would currently qualify for the relief?
To recap, entrepreneurs’ relief provides a favourable 10% rate of capital gains tax on qualifying disposals up to the £10 million lifetime limit provided that the qualifying conditions have been met for the qualifying period. The relief is available on qualifying disposal of business assets or on shares in a personal company. Changes announced in the 2018 Budget made the qualifying conditions more stringent, including an increase in the period for which the qualifying conditions must be met from 12 months to two years for disposals on or after 6 April 2019.
If indeed entrepreneurs’ relief is abolished, an unknown is whether this will take immediate effect from Budget day, from the end of the 2019/20 tax year or from another date. Assuming a worst case scenario and an immediate abolition from Budget day, should a sale already be in progress and it is possible to accelerate it to before 11 March, this may be prudent, particularly when the tax at stake is high, Likewise, where the qualifying conditions have been met by a personal company, consideration may be given to the disposal of shares by this date, possibly into a trust. However, as time is very short, professional advice should be taken as a matter of urgency to allow for contingency planning.
It must be borne in mind that any action will only affect any gain made to date. Any future gains will not benefit should the relief be withdrawn. Additionally, of course, in order to take advantage of entrepreneurs’ relief it is necessary to trigger a capital gain which will result in a tax charge.
It may, however, be the case, that the Chancellor adopts a less extreme approach and reforms the relief rather than abolishing it. This could take the form of yet more stringent qualifying conditions, a reduced lifetime allowance or an increase in the tax rate.
While all will not be revealed until the Budget, it is likely that the window of opportunity to benefit from the relief in its current, generous form is limited. It is advisable to review options ahead of 11 March and take protective action where possible.