Family businesses: will the Budget change to entrepreneurs’ relief affect you?

Many family-owned businesses will be affected by the reduction of the entrepreneurs’ relief, which was announced in the Budget this week.

In order to take control of the outbreak and costs of the coronavirus in the UK, the Chancellor announced that the funding for this required a few more billion pounds. Meaning the lifetime allowance for entrepreneur’s relief has been reduced from £10 million to £1 million, effective immediately.

Business sellers will be taxed at a rate of 10 per cent on lifetime gains up to £1 million, and above £1 million will be charged at the capital gains tax rate.

According to experts, only 20 per cent of businesses that can benefit from the entrepreneurs’ relief will suffer. However, family-owned businesses, ‘which typically will have a higher value’, will be affected by this reduction.

This reduction could potentially have a considerable impact on retirement, causing many families to rethink their plans. There could be up to £900,000 in additional tax to be paid by each family shareholder.

One expert states that ‘business owners should consider paying more into their pensions given the relaxation of reliefs for those earning £200,000’.

A reassuring outcome of this reduction to the entrepreneurs’ relief, is that the lifetime allowance is applied to individuals, not businesses. Therefore, this could quicken the process of succession planning and in turn, could encourage founders of family businesses to pass on more shares to relatives.

To counteract the recent tax planning arrangements in the Budget, there will be certain disposals (that were made before 11 March 2020) that will be caught by the new rules. Therefore, it is advised that all transactions and plans for future disposals should be reconsidered.  

 

For more information and advice on how we could help you plan for future disposals of all, or part of your business, please contact our expert team today.

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