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Reduction in the Entrepreneurs’ Relief (ER) lifetime limit for Capital Gains Tax (CGT)

Author Image The Technical Team
1 minute read
Last updated on 29th Apr 2020

Overview

ER provides for a lower rate of CGT (10%) to be paid when disposing of all or part of a business where certain criteria are met. Prior to the announcement, the availability of ER was subject to a lifetime limit of £10 million of qualifying gains.

What did he say?

The Budget announcement reduces the lifetime limit from £10 million to £1 million for qualifying disposals made on or after 11 March 2020.There are special provisions for disposals entered into before 11 March 2020 that have not been completed.

According to the Government, this change ensures that over 80% of those using the relief will be unaffected.

What does it mean?

Those affected are individuals who dispose of all or part of their business; individuals who dispose of shares in their personal company; and trustees who dispose of business assets, with gains above the new lifetime limit.

The changes to ER will increase the amount of tax paid for total lifetime ‘business’ gains over £1 million. Advisers and accountants can work together to extract value from these businesses prior to sale, for example through increased employer pension provision.

Financial advisers often encounter the potential availability of ER when dealing with corporate investment cases. Companies must be ‘mainly’ trading in the 24 months prior to sale if ER is to be potentially available. HMRC apply a 20% benchmark and therefore any investment activities must be kept within this to qualify for relief. Again, this is an area for collaboration between advisers and accountants.

"Prudential" is a trading name of Prudential Distribution Limited. Prudential Distribution Limited is registered in Scotland. Registered Office at Craigforth, Stirling FK9 4UE. Registered number SC212640. Authorised and regulated by the Financial Conduct Authority. Prudential Distribution Limited is part of the same corporate group as the Prudential Assurance Company. The Prudential Assurance Company and Prudential Distribution Limited are direct/indirect subsidiaries of M&G plc, a company incorporated in the United Kingdom. These companies are not affiliated in any manner with Prudential Financial, Inc, a company whose principal place of business is in the United States of America or Prudential plc, an international group incorporated in the United Kingdom.