Entrepreneurs’ tax relief extended to include long-term investors in unlisted companies

Most people would have picked up on the big trumpeted changes in this year’s Budget, like the announcement for the planned reduction to Capital Gains tax and the scrapping on Class 2 National Insurance contributions (NICs). However, fewer people will have noticed the smaller, but none the less significant changes that were slipped in under the radar. So, as accountants, we thought it was our duty to bring one of these to your attention.

Are you aware, for instance, that Chancellor, George Osborne, announced that Entrepreneurs’ tax relief has been extended to include long-term investors in unlisted companies? This relief applies to business owners seeking to sell on their business. Why is this significant? Well, because it potentially makes them eligible for a preferential tax rate of 10 per cent on business gains of up to £10 million.

So what changes did the Chancellor makes to Entrepreneurs tax relief?

Well, as part of the new ruling, entrepreneurs will be able to secure a 10 per cent rate of capital gains tax on newly issued shares in unlisted companies bought on or after 17th March 2016; providing they are held for at least three years from 6th April 2016. The only caveat is that these shares will be subject to a separate lifetime limit of £10 million of gains.

What’s the significance of this change?

The change will allow individuals to finance a business and obtain the 10 per cent entrepreneurs’ rate without having to work in the business itself. What’s more, an individual could qualify for £20m at the entrepreneurs’ rate of 10 per cent relief if they invest and work in one business and provide finance to another.

In the Budget documents, Mr Osborne said:

“This Budget continues to lower taxes, with new support for small business and entrepreneurs, while also modernising the tax system and taking steps to ensure that taxes are fair and are paid.”

He added that the Government would be allowing entrepreneurs’ relief to be claimed on the disposal of privately held business assets to a family member; whilst allowing for tax reliefs in joint business ventures and partnerships where the existing five per cent minimum holding conditions are not satisfied.

So what effect will this change have on the Treasury’s finances? Well, the short answer to that is that it won’t actually earn the Treasury any more revenue in 2016-17. However, in the medium term it is estimated that the Treasury will recoup upwards of £5 million in 2017-18. The slightly worrying news for the guardians of the public purse is that in the longer term the proposed changes will end up costing the exchequer money: £25 million in 2018-19, £40 million in 2019-20 and £60 million in 2020-21.

If you would like further information on the extension of Entrepreneurs’ tax relief, or would like to find out how any of the Budget changes might affect your small business, then contact Steven Glicher accountants on 0161 485 8007 or email info@stevenglicher.co.uk.

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