Autumn Statement could lead to Entrepreneurs' tax relief reforms

UK tax professionals have warned that tax giveaways for entrepreneurs selling their businesses could be reformed in the upcoming Autumn Statement.

The Entrepreneurs’ tax relief, which enables professionals selling a business to pay capital gains tax on their profits at reduced rates, could be at risk of reform with the Treasury looking to tighten its belts.

This particular relief is worth £3bn a year to UK entrepreneurs, but as it only benefits a few thousand small business owners, professionals within the industry warn that it could be vulnerable to cost-cutting by the Treasury.

In the 2013-14 financial year, Entrepreneurs’ tax relief was claimed by 43,000 people; allowing 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.

Richard Murphy, director, Tax Research UK, told the Financial Times (FT) that the brunt of this tax relief given away last year – around £1.8bn – was capitalised on by roughly 3,000 people, who each sold their company stakes for more than £1m and received average tax reliefs of £600,000 each.

The overall cost of the relief in 2013-14 was £2.9bn – £2bn more than originally forecast by HM Revenue and Customs (HMRC).

Chas Roy-Chowdhury, head of taxation, Association of Chartered Certified Accountants (ACCA), believes the value of entrepreneurs’ relief meant that it was likely to be a topic of conversation within an Autumn Statement that’s likely to focus on spending.

“Anything that can save the Government money, particularly because of the tax credit fiasco, must be up for grabs,” Roy-Chowdhury said to the FT.

Capital gains reliefs 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.

Subsequently, Chancellor, George Osborne could be forced to amend both the rate of entrepreneurs’ relief and the limit for qualifying gains. It’s not expected that the relief will be removed altogether.

The Autumn Statement will be delivered to the House of Commons alongside the government’s spending review on Wednesday 25th November.

Date published 18 Nov 2015 | Last updated 18 Nov 2015