Slashed Entrepreneurs' Relief: Disincentive?

[jim_gold]

Today it was announced in the Budget that the lifetime amount of eligible Entrepreneurs' Relief is to be cut from £10m to £1m ( https://www.business-sale.com/news/business-news/entrepreneurs-relief-tax-cut-in-budget-219983).

I'm wondering how many people here are seriously annoyed about this? Is it going to change your business exit strategy? Is it a disincentive at all to keep growing your business here in the UK?

 

[pentel]

I am part way through a sale, due to complete by the end of the month.

The immediate cut to ER as of today may have screwed with my plans in a big way.

 

[jim_gold]

I am part way through a sale, due to complete by the end of the month.

The immediate cut to ER as of today may have screwed with my plans in a big way.

I'm not sure whether it's effective as of today or not.

I will try to find out and report back. I suspect it could be a date in April so you could well have time to sneak the sale in!

 

[pentel]

I have already checked, it is with immediate effect.

 

[Clinton]

People who've been following my posts in LinkedIn and elsewhere got a headsup even before the election. I pointed out back then that both main parties had designs on ER in their manifestos and that transactions needed to be completed before the budget.

People have had 4 months since then to close deals.

Even now there are ways around the £1m ceiling if people act urgently.

What do they need to do? I'm not disclosing that in a public forum. Their advisers should be advising them. For the ones who didn't appoint advisers - well, the £10K or whatever they saved in fees is now going to cost them an additional £100K per £1m of sale price*!

*roughly speaking, subject to lots of other stuff

 

[jim_gold]

Hi Pentel

Yes, however if you are already part-way through the sale as you say, you may be OK
.. see this on the HMRC website:

This measure reduces the lifetime limit from £10 million to £1 million for Entrepreneurs’ Relief qualifying disposals made on or after 11 March 2020.

There are special provisions for disposals entered into before 11 March 2020 that have not been completed.

 

[Mr D]

Government figured they'd rather have the money than the action.

 

[ADW]

The Bahamas are always nice this time of year for an extended holiday.

 

[Newchodge]

I am part way through a sale, due to complete by the end of the month.

The immediate cut to ER as of today may have screwed with my plans in a big way.

Do you mean you have already had more than £9,000,000 in Entrepreneur's Relief?

 

[pentel]

Do you mean you have already had more than £9,000,000 in Entrepreneur's Relief?

No, not had any ER yet,

Had plans in place for the sales proceeds which will now need to be revised.

 

[Newchodge]

No, not had any ER yet,

Had plans in place for the sales proceeds which will now need to be revised.

I think ER still exists, it is just limited to £1,000,000 lifetime relief. So hopefully your plans should not change?

 

[Clinton]

Do you mean you have already had more than £9,000,000 in Entrepreneur's Relief?

Please keep up and read the OP!

I think ER still exists, it is just limited to £1,000,000 lifetime relief. So hopefully your plans should not change?

Ah, you've read it now!

For many people this drop in lifetime limit is a big problem. £1m is not a lot for a lifetime limit. Bear in mind you're often talking someone who has built their business over 20 or 30 or 40 years, slogging day in and day out, taking huge risks, making big sacrifices in their personal lives.

For many couples the business is essentially their pension plan, like some people buy a second house.

But knowing your views you're probably delighted at this news It means the government will have more money to pay benefits ...to those who genuinely need it, yes, and also to those slobs who can't be bothered to work. Hurrah.

 

[Guy Incognito]

Massive disincentive and a huge slap in the face for a lot of people.

We've worked 18+ hour days, taken on debt, huge risks in the hope of building something of value. We employ people, pay large amounts in VAT, NIC, corporation tax etc.

Yet now, if we sell in the future for the sort of money we are aiming for, we'll pay exactly the same % tax as someone who buys and sells shares in a company. There's no recognition for the time and effort involved. Even worse, for a lot of companies who take on seed funding under EIS, they will have to pay 20% whereas the investors get charged 0% (oh, and they get to offset the majority against tax if the business folds, whereas the founders lose everything).

A hugely regressive step and one that will not sit well with the core Tory vote.

 

[SillyBill]

Massive disincentive and a huge slap in the face for a lot of people.

We've worked 18+ hour days, taken on debt, huge risks in the hope of building something of value. We employ people, pay large amounts in VAT, NIC, corporation tax etc.

Yet now, if we sell in the future for the sort of money we are aiming for, we'll pay exactly the same % tax as someone who buys and sells shares in a company. There's no recognition for the time and effort involved. Even worse, for a lot of companies who take on seed funding under EIS, they will have to pay 20% whereas the investors get charged 0% (oh, and they get to offset the majority against tax if the business folds, whereas the founders lose everything).

A hugely regressive step and one that will not sit well with the core Tory vote.

I fully agree but I don't think we're a big enough demographic for anybody to give a damn about the consequences of upsetting us. We're just the cart horses of the economy afterall.

My business is a big part of my pension planning, an asset to be sold that could easily provide 30-40+ years of good income in one sum. I personally think that is deserved. 1M doesn't cut it if you retire in your 50s or 60s and live into your 90s.

For a business like mine you have to plan years ahead to put it in good shape; despite this being widely reported on for months it is hardly the sort of notice period that most can act on. This to a lot of business owners is basically the equivalent to the whacking up the state retirement age for women for 60 to 65 (as it was then). As we're talking potentially several hundred k extra going to the government that can add years onto peoples' end games. Yet another kick in the teeth.

 

[MikeJ]

If you're paying several hundred thousand extra in tax, you're selling the company for several million. While it's painful, you're down around 10%.

The UK FTSE 100 is down around 30% in the last month. That's made a much bigger hit on people's pensions than the change in EA.

 

[SillyBill]

If you're paying several hundred thousand extra in tax, you're selling the company for several million. While it's painful, you're down around 10%.

The UK FTSE 100 is down around 30% in the last month. That's made a much bigger hit on people's pensions than the change in EA.

That is isn't how it works for me; I'd have thought most financially savvy people, such as business owners, aren't reliant upon buying an annuity so nobody should be any richer or poorer than they were 2-3 months ago. I certainly don't buy shares or funds for growth rather income which I'd have thought most others do as they near retirement. I've barely blinked this past couple of weeks despite red everywhere....in fact I've used the opportunity to buy into more oil majors such as Shell/BP etc. at dividend yields of 8-9% and as high as 11%. Once I've bought a share like that I couldn't care less about the price as I will never sell; I am cashing a good divi income for life then. On the flip side a 6 figure actual loss is a major sting I will feel. I don't see it as comparable but others may.

 

[UK Contractor Accountant]

I think we will go back to the old tax planning ways for multi million company sales which will be the offshore route in a tax haven.

 

[Clinton]

Exactly! Lefties don't realise how easily capital crosses borders, and that's despite the OECD and their coordinated international action against BEPS.

They are envious of someone selling their business for say a couple of million quid and so don't see any reason why such business owner shouldn't pay the full £400K tax and why they should get a £200K concession. As far as they are concerned, the entrepreneur still got a lottery jackpot sized payout.

Thick lot. Now the UK taxpayer won't even see that £200K as companies restructure and find ways around GAAR.