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Budget 2020: Entrepreneurs’ relief – back to where we started….

As widely expected the capital gains tax lifetime limit for entrepreneurs’ relief has been reduced from £10m to £1m from today. This may impact on the net cash available to business owners who sell shares in their trading company or all or part of their business. However there is good news that there were not more general changes to capital gains tax where the rates remain lower than for income tax.

There are also special rules for contracts which have been entered into before 11 March 2020 that have not yet completed and for certain exchanges of shares and securities made before 11 March 2020. The new anti-forestalling rules mean there may be a need to show that the transaction was not entered into for a tax advantage or it is wholly commercial where connected parties are concerned. There are now additional rules to consider where there has been a share-for-share exchange after 5 April 2019.

The limit announced today brings the relief back down to the original £1m level which is where it started when the relief was first introduced in 2008 (before subsequent increases to £2m, £5m and £10m).  For any gains in excess of this level owners will be paying 20% capital gains tax.  Any individual is able to make £12,300 of capital gains in the 2020/21 tax year before having to pay capital gains tax.

The new £1m limit may have a knock-on effect on some key employees with enterprise management incentive (EMI) schemes hoping for large potential gains on exit and there may be further changes given a future review is expected.

 

FEATURING: Heather Britton
Heather specialises in providing tax advice to companies and their directors/shareholders, as well as unincorporated businesses and property owners. She enjoys providing practical tax solutions,… read more
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