Abolition of Entrepreneurs’ Relief could cause a substantial rethink of business owners’ retirement plans
Business owners across the UK need to rethink their plans for the future of their business after rumours surface that the Chancellor may eliminate Entrepreneurs’ Relief in the upcoming Autumn Budget.
Under the current rules, Entrepreneur’s Relief (ER) offers directors and shareholders holding more than five per cent of the voting shares a relief giving them an effective tax rate of 10 per cent on Capital Gains when they distribute reserve held in their company.
However, a recent report from The Resolution Foundation labelled the relief as ‘the UK’s worst tax break’ and suggested that it should be scrapped to help the Government meet its £20 billion NHS pledge.
The organisation went on to claim the tax was regressive, ineffective and expensive – stating that it ‘overwhelmingly benefits a small number of wealthy individuals.’
Since its release, rumours have been circulating that Philip Hammond, the Chancellor of the Exchequer, is considering cutting back the relief, although no official confirmation on its appearance in the Budget on the 29 October is yet to be given.
Lynn Gibson, our Director, says that owners should take immediate action to place their company into a Members’ Voluntary Liquidation (MVL) prior to the budget to take advantage of ER.
“Entrepreneur’s Relief has made taking money out of a company more tax efficient. As such, it continues to be used by business owners and shareholders when they are looking to sell or close their company,” explained Lynn.
“In particular, many owners take full advantage of the relief on offer when conducting a Members’ Voluntary Liquidation (MVL), which is a common tool used for shutting down a solvent business.”
Lynn said that the primary benefit of an MVL, in comparison to other winding up orders, is that it allows a liquidator to realise the assets of the business in order to distribute the proceeds to company members by way of capital instead of income.
Lynn added: “Those who are considering an MVL in the near future should look to bring their plans forward if at all possible, as a sudden change in the Autumn Budget may make this form of winding up order less tax efficient than other options, such as succession or a buyout.”