Entrepreneurs’ relief does not boost investment

Company owner-managers respond to changes in income taxes by adjusting how and when they take money out of their company and not by changing the amount of income they create or how much investment they do according to new research from the Institute for Fiscal Studies. Many company owner-managers hold significant sums of cash in their companies to access lower capital gains tax rates and thereby substantial tax savings. Business incomes and therefore the benefits of lower taxes on such income accrue disproportionately to those at the very top of the income distribution.

The IFS found that HMRC tax records show a large number of owner-managers report earning an income exactly equal to the higher rate threshold in income tax. Further there were large reductions in taxable income after the introduction of the 50% additional rate and the withdrawal of the personal allowance above £100 000.

In principle...