The Budget 2020 – Entrepreneur’s relief trimmed

There is no doubt about it, the biggest fear of many advisers in the run up to the budget was that Entrepreneur’s Relief would be axed. This is the relief that offers a very advantageous tax rate of 10% on disposals of qualifying businesses and shares in an individual’s personal company.

There had already been a number of changes to limit the scope of the relief, such as the extension of the qualifying holding period from one year to two years and the somewhat  botched introduction of additional tests to ensure that only those with a real economic stake in the business could satisfy the 5% personal company tests.

Today however, despite many calls to scrap what the Guardian recently called “an expensive, regressive and inefficient sop to the wealthy” Rishi Sunak stated that genuine entrepreneurs relied on the relief and went on to say that it encouraged risk-taking and creativity.

The lifetime limit of gains that can benefit from the relief has been cut from £10million to £1million, limiting relief not only for profits above this level from an individual deal, but also for entrepreneurs who have a number of different businesses to sell over the period of their working life.

The change takes immediate effect, applying to disposals made on or after the date of the budget, 11 March 2020.  Gains on any qualifying disposals from this date onwards will be combined with qualifying gains from earlier disposals to assess whether any Entrepreneur’s Relief is due.  There are also anti-avoidance rules to counter unconditional contracts entered before budget day with contractual completion after Budget day.