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Budget count down: Entrepreneurs Relief

Hello again. Today is about anticipating changes to entrepreneurs relief (ER).

First of all, what is ER? 

It’s a tax benefit that restricts capital gains tax to 10% under certain circumstances, most often seen when selling shares in a private company.  It’s all but confirmed that ER will be scrapped or, at the very least radically reformed in the current budget: presumably from the start of the new tax year on April 6th, so presumably the standard rate of 20% (when in higher rate territory) will apply.   This could save a few hundred million a year (or indeed increase tax take by that amount).

Is that such a bad thing?  Not if you don’t own and run your own company, but we seem to be ignoring a couple of factors here:

Firstly, it’s not just corporate fat cats that could benefit from this relief.  A key benefit of the very popular EMI employee share options scheme is that ER (again under detailed specific circumstances) applies on sale of the shares, so the potential benefits of employee share ownership, encouraged by government elsewhere, are substantially watered down.  Could removal of ER discourage take-up of this scheme, or will there be a replacement ‘employee share ownership relief’ to take its place?

Secondly, I don’t know any corporate fat cats, but I do know that a substantial part of readers here will have put a lot of blood, sweat and tears into starting a business, often with little or no reward in the early days (and years): and ER gives some reward for your early risk-taking and employment-creation.  For a government to say they want to encourage entrepreneurship on one hand, but to continue eroding the benefits of starting a business, seems somewhat cack-handed.  I’m being as polite as I can there.

Tomorrow I’ll try to dig out some positive ideas for angel investors.

Questions?  If so please talk to your Blu Sky account manager.

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