As the accounting world awaits George Osborne’s latest Autumn Statement, questions remain about how the Chancellor will go about reducing the deficit. There has been growing speculation amongst UK tax professionals that one ‘benefit’ in the Chancellor’s line of fire is Entrepreneur’s Tax Relief. It is believed that this ‘benefit’ may be ripe for reform.
So what exactly is Entrepreneur’s Tax Relief? Well, the tax break enables professionals selling a business to pay capital gains tax on their profits at reduced rates. The relief is currently worth around £3bn a year to UK entrepreneurs. That in itself is no bad thing; however the problem has been that it has so far only benefited a few thousand small business owners. Unfortunately it’s that very fact that could make the relief vulnerable to reform from a Treasury that is looking for ways to tighten its belt.
Entrepreneurs’ tax relief allows successful business owners to sell up and pay just 10 per cent in capital gains tax, as opposed to the normal 28 per cent, up to a lifetime limit of £10m. In the 2013-14 financial year Entrepreneurs’ tax relief was claimed by 43,000 people. The overall cost of the relief in 2013-14 was £2.9bn: £2bn more than originally forecast by HM Revenue and Customs (HMRC).
So what’s the extent of the problem from a Treasury perspective? Well, Richard Murphy, director, Tax Research UK, told the Financial Times (FT) that the brunt of this tax relief given away last year, which amounted to around £1.8bn, was seized upon by nearly 3,000 people: each sold their company stakes for more than £1m and received average tax reliefs of £600,000. Chas Roy-Chowdhury, head of taxation, Association of Chartered Certified Accountants (ACCA), believes that, given this year’s Autumn Statement is likely to focus on spending, the ‘value’ of entrepreneurs’ relief to a disproportionately small audience means that it is likely to be a potential target in an Autumn Statement. He told the FT:
“Anything that can save the Government money, particularly because of the tax credit fiasco, must be up for grabs,” he said.
So is Entrepreneur’s tax relief likely to be a target in the Autumn Statement? Well, it’s difficult to know for sure. What can be said with a little more conviction is that capital gains reliefs are ‘potentially’ a target. They have been widely regarded as vulnerable ever since Prime Minister, David Cameron’s pre-election pledge to lock income tax, national insurance and VAT rates until 2020.
Whilst the Chancellor may not remove the relief altogether, he may never the less be forced to amend both the rate of entrepreneurs’ relief and the limit for qualifying gains.
We’ll know for sure when Mr Osborne delivers the Autumn Statement and government spending review on Wednesday 25th November.