Thinking of selling or liquidating your business?
If you're thinking of selling or liquidating your business or business assets, then be mindful of the potential changes to Entrepreneur's Relief that could be announced in the Budget on 11 March 2020. Some attention was directed towards Entrepreneur's Relief ("ER") from both Labour and the Conservatives during the election, with Labour saying they would remove the relief and the Conservatives proposing review and reform, but without concrete proposals.
ER was first launched in 2008 and, in essence, allows a business owner to make gains on disposing of their business at just a 10% rate of tax on the first £10m of total gains since 2008, so it is a generous relief. Without ER, a business owner would pay a top rate of 20% capital gains tax on disposal.
However, unlike previous Budget predictions where there has been generalised speculation by commentators that ER was "at risk", this is now a specific proposal by the government and so we are expecting something to happen - but we don't know what or the date from which it might be effective.
An announcement could be made in the Budget to take effect from the Budget Day, from the new tax year in April, or even 2021 - or perhaps even kicked down the street for another "review". There's also a possibility to increase the tax rate for ER, reduce the lifetime allowance, increase the qualifying period even further or perhaps make it go back to something like Retirement Relief with an age threshold. It could even be abolished completely.
Bringing your business disposal or cessation forward to before Budget Day may be of benefit - but it may well not. The timescale for any future changes could perhaps be too short to accomplish much. There are other factors in your decision too - including reviewing whether everyone involved does actually qualify already for ER or considering whether other tax rules might apply such as the "phoenixism" rules. Those rules if you are thinking of liquidating your company to extract your cash and mean you can't run the same or similar business within two years of liquidation.
Likewise, if you are thinking of disposing of any assets used within your business, such as property or shares, it may well be worth considering whether to ensure this is completed before the budget.
If you think that any changes to ER may affect you and would like to discuss these further, please do not hesitate to get in touch with us.