Many people were predicting the demise of Entrepreneurs’ Relief in the budget announcement yesterday, however it has had a reprieve, albeit one which sees a 
significant 90% reduction in the limit for claims. His budget announcement 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.
Entrepreneurs’ Relief benefits individuals who dispose of all or part of their business; individuals who dispose of shares in their personal company; and trustees who dispose of business assets.
The government believes that this change in the lifetime limit will improve the effectiveness and value for money of the relief. The hope is that this change will ensure the government continues to encourage genuine risk takers and entrepreneurs’ in a fair way, with over 80% of those using the relief unaffected.
Legislation will be introduced in Finance Bill 2020 reducing the Entrepreneurs’ Relief lifetime limit to a maximum of £1 million. The rules will also provide that the lifetime limit must take into account the value of Entrepreneurs’ Relief claimed in respect of qualifying gains in the past.
Rules will also be introduced that apply to forestalling arrangements entered into before Budget day. In such cases the disposal will be subject to the £1 million lifetime cap unless:
- The parties to the contract demonstrate that they did not enter into the contract with a purpose of obtaining a tax advantage by reason of the timing rule in section 28 of the Taxation of Chargeable Gains Act 1992, and
- Where the parties to the contract are connected, that the contract was entered into for wholly commercial reasons.
In addition, where shares have been exchanged for those in another company on or after 6 April 2019 but before 11 March 2020, and
- both companies are owned or controlled by substantially the same persons, or
- persons who held shares in company A hold a greater percentage of shares in company B than they did in company A and, on 11 March 2020, the personal company test, the trading company and the employee/officer test are met in respect of company B,
Then if an election is made under section 169Q of the Taxation of Chargeable Gains Act 1992 on or after 11 March 2020, the share disposal is to be treated as taking place at the time of the election for Entrepreneurs’ Relief purposes, meaning that the new lifetime limit of £1 million will apply.
Applying Entrepreneurs’ Relief is complicated so why not talk to the Bedrock team who have considerable experience in ensuring business owners keep on the right side of HMRC when claiming the relief. More information can also be found on the .Gov website.
