Think tank urges government to abolish Entrepreneurs’ Relief

Think tank the Resolution Foundation has dubbed Entrepreneurs’ Relief (ER) the UK’s ‘worst tax break’, and has urged the government to abolish the initiative altogether.

ER is a tax relief available on the disposal of a business, and gives those eligible access to a lower rate of capital gains tax (CGT): under ER, this is charged at 10%, as opposed to 20%.

According to the Resolution Foundation, ER is ‘ineffective’, and should therefore be abolished in order to fund improvements to NHS services.

When it was first introduced in 2008, ER was expected to cost £200 million per year. The Resolution Foundation stated that spending on the relief ‘ballooned’ to over £2 billion by 2011/12, due in part to ‘increased generosity’ and ‘greater-than-expected use’. HMRC recently predicted that ER spending increased to £2.7 billion last year.

The Foundation suggested that this figure is ‘more than the entire budget’ for the UK’s intelligence services, and is enough to ‘provide £100 to each and every household in the country annually’.

Adam Corlett, Senior Economic Analyst at the Resolution Foundation, said: ‘As the Treasury wrestles with how to raise revenues to fund the Prime Minister’s pledge of £20 billion for the NHS, they should start by scrapping this expensive, regressive and ineffective tax relief.’

Nunn Hayward LLP Fact Sheet: Share Investment Reliefs (Updated for Budget 2016)

This factsheet summarises and compares the conditions as well as the tax benefits to the investor of the following reliefs:

• Seed Enterprise Investment Scheme – (SEIS)
• Enterprise Investment Scheme – (EIS)
• Entrepreneurs Relief – (ER)
• Investors Relief – (IR) – Introduced by the 2016 Budget

The table below summaries the main conditions and tax benefits of each.

 

	SEIS	EIS	ER	IR
Maximum investment in a tax year	100,000	1,000,000	No Limit	No Limit
Income tax relief available	50%	30%	Nil	Nil
CGT holdover relief on amount subscribed	Up to 50% of investment	No/Yes Limit	Nil	Nil
CGT rate on disposal	0%	0%	10% (A)	10% (A)
Income Tax/CGT loss relief	Y	Y	N	N
Ownership	≤30%	≤30%	≥5% (B)	No Limit
Directorship	Y (C)	Y (D)	Y (E)	N
Minimum holding period	3 Years	3 Years	12 Months	3 Years

Notes:

(A)          Only available on the first £10m of the gain (Lifetime limit)

(B)          Can hold <5% if shares acquired under EMI share option scheme and all other conditions met

(C)          Directorship permitted in certain circumstances. General employment is not permitted within 3 years of subscription

(D)          Must not have been previously employed or connected with the company in which investment is made but can be appointed a formal Director after initial subscription

(E)          Must be an employee or director or other office holder of company to be eligible for relief

For a more detailed summary of the key conditions and tax benefits for each of the above please request the corresponding factsheets:

• Seed Enterprise Investment Scheme (SEIS)
• Enterprise Investment Scheme (EIS)
• Entrepreneurs Relief (ER)
• Investors Relief (IR)

 

Next Steps

For further information or to speak with a Partner, contact us at the following:

Nunn Hayward LLP

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20, Station Road

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Buckinghamshire

SL9 8EL

 

Telephone: 01753 888211

http://www.nhllp.com

  

Disclaimer

 The information in this sheet is intended as a general guide only.  As such, taxation advice must always be sought before action is taken or refrained from.  Whilst prepared in good faith, no liability can attach to this firm or any member or employees as a result of the information contained in this sheet. 

 Further, Nunn Hayward LLP are not allowed by the FSA to provide financial advice.  Nothing in this sheet contains such advice.  We would strongly recommend that advice from an independent financial advisor is sought before deciding on any course of action caused by this sheet.