The government is slashing entrepreneurs’ relief from £10m to £1m on the basis it has benefited only a minority of very affluent taxpayers and done little to generate additional entrepreneurial activity.
In Wednesday’s budget announcement chancellor Rishi Sunak described entrepreneurs’ relief as “expensive”.
He said: “We need more risk taking and creativity in this country, not less.”
The government will reduce the lifetime limit on gains eligible for relief to £1m. Sunak said the measure will leave more than 80% of those using the relief unaffected, while making the tax system fairer and more sustainable – and save £6bn over the next five years.
‘Harsh blow’ for those planning to fund retirement
Aegon pensions director Steven Cameron (pictured) said the reduction in relief will come as a “harsh blow” to those planning on using the sale of their business to fund retirement.
“While too late for those about to retire, for those at younger ages, the message is not to risk all your retirement plans in a vehicle which could suddenly lose its tax advantages,” he said. “While the reliefs and allowances for pensions are reviewed from time to time, the main purpose of pensions is to provide retirement incomes and it would be very surprising to see any retrospective cuts in tax reliefs there.”
Killik & Co head of wealth planning Svenja Keller said: “Lowering the limit by £9m is a big change. However, isn’t such a large reduction similar to an abolishment? Whether this could happen next remains to be seen.”
Cash for smaller businesses and R&D boost
Sunak also pledged a £3,000 cash grant for smaller businesses and unveiled plans to increase public R&D investment to £22bn a year by 2024-25.
He said this is the “largest and fastest” ever expansion of support for basic research and innovation and puts the UK ahead of the USA, Japan, France and China.
RIFT Research and Development director Sarah Collins said: “An increase in the R&D credit amount to 13% and a commitment to encourage the biggest R&D investment by industry in 40 years, to increase to 2.4% of GDP, shows this government is serious about encouraging business and business investment within the UK.
“This is a fantastic sign for all industries who look to better their business practices through R&D, especially when they have the ability to recoup such spend with R&D tax credits. Something certainly worth raising a glass to, be it Scotch or otherwise.”
