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Capital gains will remain eligible for entrepreneurs’ relief (ER) when realised even when they have been deferred into investments that qualify for the enterprise investment scheme or social investment tax relief, the chancellor announced in yesterday’s autumn statement.
The measure takes immediate effect, and is good news for taxpayers wishing to re-invest gains into unquoted trading companies. The previous system saw such investors facing the full capital gains tax (CGT) rate of 28%, rather than ER’s 10%
Capital gains will remain eligible for entrepreneurs’ relief (ER) when realised even when they have been deferred into investments that qualify for the enterprise investment scheme or social investment tax relief, the chancellor announced in yesterday’s autumn statement.
The measure takes immediate effect, and is good news for taxpayers wishing to re-invest gains into unquoted trading companies. The previous system saw such investors facing the full capital gains tax (CGT) rate of 28%, rather than ER’s 10%
The change takes immediate effect, and will “encourage longer term strategies, rather than the short-term cashing in of investments to ‘bank’ entrepreneurs relief, and will therefore encourage the development of the UK’s enterprise economy,” said Tina Riches, national tax partner at Smith & Williamson.
Her enthusiasm was shared by the Quoted Companies Alliance, but the not-for-profit organisation suggested the government could have done more to encourage greater long-term investment in growing companies by “removing the arbitrary 5% shareholding requirement for entrepreneurs’ relief, so that all who contribute to the success and growth of a business can qualify”.
Less welcome was the chancellor’s decision to stop individuals claiming ER on disposals of the goodwill associated with a business when they transfer the business to a related close company.
Natalie Miller, president of the Association of Taxation Technicians, described the measure as “discriminatory” and added, “It may be difficult to agree what the goodwill is worth, but that does not alter the fact the goodwill is an asset of the business.
“Entrepreneurs’ relief is intended to encourage entrepreneurial activity. A key part of that activity is the creation of value. It therefore seems illogical to deny relief where value has genuinely been created. As a matter of principle, the goodwill disposal should be treated in the same way as any other business asset,” said Miller.
This restriction to Entrepreneurs’ Relief should be seen as a pragmatic solution to a resources issue. HMRC officials were undoubtedly spending significant resources negotiating the value of goodwill and the question to be asked is Why? Viewed objectively in the cold light of day, the negotiation process with valuation officials was but a step in a tax planning exercise carried out by the owners of unincorporated businesses. HMRC officials have simply shown the same entrepreneurial approach to a problem as many taxpayers have adopted in structuring their business operations. To me this smacks of officials using their initiative.
Kevin Slevin