As the general election looms closer, the Labour party’s manifesto proposes significant tax reform, with a large focus on increases to corporation tax and a reassessment of existing tax reliefs.
Entrepreneurs’ Relief (“ER”) has been a favoured relief for business owners potentially affording them a 10% rate of Capital Gains Tax (“CGT”) on a lifetime allowance of £10 million. However, Labour are looking to reform the system of tax reliefs which is likely to affect ER.
Should they win the election, Labour proposes that they will review existing tax reliefs, including ER. Sir Edward Troup, former executive chair of HMRC, has recently called for the elimination of ER on the basis that it provides “no incentive for real entrepreneurship” and instils a “short-term culture” for businesses.
In a separate costings document, Labour proposes that ER will be scrapped and that capital gains are taxed marginally in line with income tax rates.
If you are a business owner considering selling your business in the near future, you will need to be conscious of your potential increased liability to CGT.
Labour’s proposed changes to income tax charges include a 45% rate for income over £80,000 and a 50% rate for income over £125,000. The potential for a large proportion of gains to be taxed at a rate of 50% is clearly a huge increase on the current 10% rate for gains which qualify for ER.
The Conservatives have also said that they propose to review and reform ER, and so changes could be afoot whoever is in power.
Business owners particularly concerned about their entitlement to ER and liability of capital gains will need to carefully consider their current position. Although exact details have not been finalised, it is likely that business owners’ liability to CGT will increase whoever wins the election.
For any more information please contact Angus Bauer.