Whichever party wins the General Election there is a chance of change to Entrepreneurs Relief

Currently, most business owners would expect to qualify for Entrepreneurs’ Relief (ER) if they sold their business. Entrepreneurs relief reduces your rate of tax on a sale from 20% to 10%.

Whilst the current Government has been broadly supportive of ER, whichever party emerges victorious on June 8 will find themselves looking to find additional tax revenues. They’ll want to do this without increasing the headline rates of tax or hitting “real people”, so some restrictions on ER might be on the horizon.

What are the soft spots of ER?

The ER rules could be seen to be too generous, and therefore restricted in the future, in a few aspects:

  • Working hours could be set at a minimum level of say 25 hours per week.
  • The current 5% minimum shareholding could be increased to say 25%.
  • The lifetime limit of £10m could be reduced.

What can be done about it?

Some straightforward planning could be done to give you the ability to lock in the benefits of the current regime, even if the rules change, without crystallising a tax liability in the meantime. When you then come to the actual sale of the business, if the rules have changed then you would be protected from the effect of this, and if the rules haven’t changed then no harm will have been done. In some ways you could view this as similar to a form of insurance in case ER is restricted.

If you require taxing planning advice around entrepreneurs relief please do not hesitate our expert tax consulting team.

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