New rules on Entrepreneurs’ Relief

The Chancellor announced new rules on Entrepreneurs’ Relief (ER) in this year’s Budget, lessening some of the challenging restrictions he introduced last year. However, this year’s changes look set to lead to problems of their own.

Entrepreneurs’ Relief was firmly in the Chancellor’s sights last year as he faced political pressure to take action on tax avoidance.

There are several conditions that have to be met for Entrepreneurs’ Relief to apply. These include a one year holding period for an asset on which ER is claimed.

The Treasury introduced the relief to create an incentive for people to set up and grow their own businesses. Capital gains arising from eligible sales are applied at 10 per cent rather than the full rate of Capital Gains Tax.

However, the changes announced in this year’s Budget mean some individuals who had lawfully claimed the 10 per cent rate under the associated disposals rules may find that the 18 per cent rate or 28 per cent rate of Capital Gains Tax should have been applied to any profit made. It is now unclear whether they will now need to meet their tax shortfalls. HM Revenues & Customs is due to clarify the position in future.

Link: Entrepreneurs’ Relief Fact Sheet

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