During his budget speech on March 11th, Chancellor Rishi Sunak announced he had cut Entrepreneurs’ Relief from £10m to £1m, amid expectations he would scrap it altogether.
Sunak also confirmed the government’s commitment to supporting small businesses and innovation. This includes retaining the VCT and EIS tax incentives, increasing the support for SMEs across the UK’s 38 Growth Hubs, providing £200m to the British Business Bank’s Start-Up loans programme and increasing public R&D investment to £22bn by 2024-25.
Commenting on the impact of the budget John Glencross, CEO of Calculus Capital said: “There is a lot in this budget that is positive for entrepreneurs and small business owners. Crucially, for the growth economy, EIS and VCT incentives remain in place to ensure growing businesses have access to risk capital.
“Rishi Sunak is now the sixth Chancellor to support these important measures since they were introduced by Kenneth Clarke 25 years ago, underlining the contribution they are recognised to make to a vibrant UK economy.”
Commenting on the change to Entrepreneurs’ Relief, he said: “There had been too many representations in its support for the Chancellor to scrap Entrepreneurs’ Relief completely, but a tightening of the rules was expected. As it stood, it was a flawed relief that benefited few and was not felt to be critical in incentivising risk-taking entrepreneurs.
“The Federation of Small Businesses said about 38,000 people benefit from Entrepreneurs’ Relief with an average saving of £15,000. That indicates the average business sale proceeds are in the hundreds of thousands, not millions.
“The Institute for Fiscal Studies said only about 5,000 business sales account for three quarters of the total Entrepreneurs’ Relief payments. The other 33,000 account for a quarter.
“It’s interesting that the £1 million cap for Entrepreneurs’ Relief roughly equates to the lifetime pension ‘pot’ allowance which indicates that the Chancellor, sensibly, recognised that for many small business owners, who haven’t been able to make regular pension contributions, the sale funds their retirement.
“The majority of individuals who benefit from Entrepreneurs’ Relief will be unaffected by the change. For others, the feeling is that they will be entrepreneurs regardless and that CGT rates, which were reduced to 20% in 2016, are still very competitive internationally.”