The Chancellor confirmed that a review into the effectiveness of Entrepreneurs' Relief has now been completed. Where this relief is available Capital Gains Tax of 10% is payable in place of the standard rate. The Chancellor had many representations saying that the relief is ineffective and expensive and should be abolished. In fact, the Chancellor confirmed that three quarters of the relief goes to just 5,000 people with the relief currently costing government £2.6bn a year.
However, Chancellor Sunak, decided not to abolish the relief but rather to reduce the lifetime limit. Therefore, with immediate effect from Budget date, 11 March 2020, the lifetime limit is being reduced from £10 million to £1 million. There will be special provisions for disposals entered into before 11 March 2020 that have not been completed.
On balance, most entrepreneurs will probably be satisfied with this change as there was a lot of pressure on the Chancellor to fully remove this relief. The change in the limit will not impact over 80% of claimants and will, according to HMRC, encourage genuine risk takers and entrepreneurs’ in a fair way. This should help encourage the view that the government remains supportive of the development of new businesses.
There are a number of qualifying conditions that must be met in order to qualify for the relief. The new £1m lifetime limit means that individuals can qualify for the relief more than once subject to an overriding total limit of £1m of qualifying capital gains.
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