It is believed that Chancellor Sajid Javid is set to scale back a tax break for entrepreneurs in next month’s Budget, amid concerns that entrepreneurs’ relief is overly generous to the ‘already wealthy’.
Entrepreneurs’ relief, which was introduced by the Labour government in 2008, is a tax break for those who are selling all or part of their business. Those who are eligible can benefit from paying tax at 10 per cent for gains on qualifying assets.
To qualify for all or part of the business, the seller applying for relief must either have been a sole trader or business partner for two or more years or have owned the business for two or more years.
While the relief was designed to encourage people to start new companies, it has been criticised by many groups who believe it should be targeted at start-up firms rather than those who have already “made a small fortune”.
As one group commented, the relief is a “massive handout” to business owners when they sell up, while the Institute for Fiscal Studies (IFS) said last year that the relief was “unfair” and not successful in its stated aim of encouraging business investment.
However, not all critics believe that the relief should be scrapped, with the Federation of Small Businesses (FSB) saying that the relief should be reformed in order to focus on helping smaller entrepreneurs.
As a spokesman for the FSB commented, unlike employees, most entrepreneurs do not have a pension and have been planning to sell their business to fund their retirement, so a reform to limit the relief to £1 million, for example, would align well with the pensions pot limit.