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Budget 2020: Restrictions on Entrepreneurs' Relief for business

Matteo Timpani, Partner, Corporate Finance
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The Chancellor’s Budget brought about the unsurprising restrictions to Entrepreneurs’ Relief. The generous relief previously allowed business owners, under certain circumstances, to pay tax at a rate of 10% on the first £10 million of gains realised in their lifetime from the sale of qualifying assets. This relief was restricted significantly in the Budget from £10 million to £1 million for any disposals entered into on or after 11 March 2020.

With the standard Capital Gains Tax rate unchanged, at 20%, this amendment to the relief has reduced the potential benefit to individuals from £1 million over their lifetime to £100,000.

While this change is certainly not one being welcomed in the entrepreneur community, the amendment to Entrepreneurs’ Relief has been expected for a number of years. In the short term there may be a period of reflection for some business owners, but the market remains buoyant and awash with capital from financial and strategic investors seeking attractive investments. Valuations remain strong for quality businesses, and business owners should take comfort from this.

Entrepreneurs’ Relief, as we knew it, is significantly reduced for the foreseeable future. That said, qualifying capital gains will continue to be taxed at the Capital Gains Tax rate of 20%, significantly lower than comparable income tax rates at up to 45%. Couple this with alternative structures, such as disposals to Employee Ownership Trusts (where qualifying disposals continue to be tax-free for selling shareholders), and the market remains an attractive one for business owners to realise value from the businesses they have grown.

How we can help

Crowe has a national team of Corporate Finance advisors who are available to support business owners and managers who are considering their options in respect of their future succession, sale of their business, growth of their business and realising value.

For more information on how Crowe can help, contact Matteo Timpani or your usual Crowe contact.

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Matteo Timpani
Matteo Timpani
Partner, Corporate Finance