Entrepreneurs’ relief cut to £1 million in Budget

The Chancellor, Rishi Sunak, announced in yesterday’s Budget that entrepreneurs’ relief (ER) will be cut from £10 million to £1 million, effective immediately.

The cut will apply to disposals that qualify on or after 11 March 2020, as well as some disposals made before yesterday’s Budget announcement.

There will be special provisions for disposals agreed before 11 March 2020 but that have not yet been completed, as well as for some ER elections after an exchange of shares for those in another company.

Around 4,000 business owners benefit from the tax relief each year, with the Exchequer estimating that it costs £2.7 billion per year to operate the system.

ER reduces the amount of capital gains tax (CGT) that is paid on disposals of qualifying businesses, shares from an enterprise management incentive and shares in a personal company.

The rules before yesterday’s announcement meant CGT was paid at 10 per cent of claims, up to a lifetime limit of £10 million of qualifying gains. This figure has now been reduced to a lifetime limit of £1 million.

Rishi Sunak said: “We need more risk-taking and creativity, so we are not going to fully abolish entrepreneurs’ relief, but we will reduce the lifetime limit from £10 million to £1 million.

“This will save £6 billion over the next five years and this money will be invested straight back into innovative businesses and technology.”

For help and advice on matters relating to the change to entrepreneurs’ relief, contact our expert team today.