The most obvious of these is Entrepreneur’s Relief. By claiming this when selling all or part of their company, business owners pay less capital gains tax – 10 per cent on qualifying assets, instead of the normal rate of 18 per cent or 28 per cent. Individuals have a lifetime limit of £10 million of taxable gain, meaning they will have saved £1.8 million if they use their full limit.
Entrepreneur’s Relief is one of the most popular tax breaks in the UK. However, the National Audit Office recently calculated that the actual cost of this relief in the tax year 2013/14 was £2.9 billion – over three times the original estimated cost when it was introduced.
But a potential change in government could see this lucrative tax benefit reduced or scrapped, and so business owners who are considering, or currently selling their business might be wise to consider finalising the transaction ahead of May’s general election.
Ewan Grant, Baker Tilly’s head of corporate finance in Scotland, said: ‘Entrepreneur’s Relief is an extremely popular tax initiative for business owners, so it’s not surprising that the take-up of it has resulted in a much larger cost to government than originally anticipated. We’ve already started to get calls from entrepreneurs concerned that any change in government next year may result in the reduction or scrapping of this relief, and what impact this could have on the sale of their business.
‘We simply don’t know whether a new government would continue to support this initiative, but with less than six months to go until the general election, I would encourage business owners to think about the timing of selling their business and to seek professional advice on any commercial or tax considerations.’