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Should Entrepreneur Relief be abolished?

What is your view?

Whilst investigating ER I came across a comment from Moore Stephens:

Moore Stephens said Revenue & Customs projections suggest only £2 billion of Entrepreneurs’ Relief will be successfully claimed against capital gains tax bills this year, down from £3.5 billion in each of the past two years'.

George Osborne started to attack abuses (or perceived abuses) to the claim (abolish claim on goodwill etc) and then went before he could do any more.

Word on the street says that HMRC are undertaking a review of ER but what do you think? Should it be abolished or should it remain in place but possibly be rewritten?

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21st Sep 2017 12:13

I think that ultimately it should be abolished, but only after I have retired and cashed in my chips.

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By mrme89
21st Sep 2017 12:16

HMRC will no doubt sell it to the politicians as 'aggressive avoidance that must be stopped'.

Once they have done away with these types of reliefs, they can move on to removing such things as the personal allowance.

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21st Sep 2017 12:18

Not abolished but it could do with rewriting from scratch.

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21st Sep 2017 12:32

Is this not a bit obvious? Surely if the rate of CGT has come down from 28% to 20% then the benefit of ER is now only a 10% saving (20%-10%) from 18% (28%-10%).

Thus 3.5bn x 10/18 = £2bn (ish)

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By mabzden
21st Sep 2017 13:01

For me the CGT rates and amounts raised are less important than the principle.

Starting and building a company is hard for the entrepreneur and good for society. Buying and holding a buy-to-let flat in Balham is easy for the taxpayer and no use whatsoever to society.

This is a fact often loss on HMRC. They get bees in their bonnets about how we should all pay the same tax rates as those taking no risks and/or doing as little work as possible before picking up their pay cheque. Apparently it's "fairer" that way.

But part of the function of the tax system is to encourage behaviour that creates wealth and strengthens the economy so we can pay for better public services in the future.

So entrepreneurs should get a tax break. If nothing else it's a small pat on the back from the PM and Chancellor.

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to mabzden
21st Sep 2017 13:04

mabzden wrote:

Buying and holding a buy-to-let flat in Balham is easy for the taxpayer and no use whatsoever to society.

Spoken by someone who knows rock all about property investment (outside Balham, anyway).

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By DJKL
to mabzden
21st Sep 2017 13:10

Fair point in part, but what about building up a property rental business bringing in say £1.4 million of rents, having employees, using local tradesmen and suppliers, building property to lease,providing offices, shops, studios, warehouses, workshops and flats to the local area; are you really saying that takes no work, because it does not get ER re its shares?

Everyone thinks running BTL flats is no work, sure, if only 1,2,3 etc flats, try it with 61, I can guarantee you do have to work.

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By DJKL
to DJKL
21st Sep 2017 13:14

I would also point out if you want a social good of more housing available then some tax reliefs targeted at those property investment entities who actually arrange for what they are going to rent to be built might be a step in the right direction.

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By mabzden
to DJKL
21st Sep 2017 17:17

Fair enough, it might involve some work at that level.

My main point still stands though. I think we should encourage entrepreneurs in the hope that some of those businesses go on to be huge. The owners will then cash in and reinvest their proceeds in other start-up companies, and also share their knowledge and expertise with other aspiring entrepreneurs.

Don't just take my word for it. Cities in Europe (Berlin, Paris etc) are desperate to attract entrepreneurs to their technology hubs. They seem less desperate to poach our portfolio landlords.

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to DJKL
21st Sep 2017 14:35

DJKL wrote:

Fair point in part, but what about building up a property rental business bringing in say £1.4 million of rents, having employees, using local tradesmen and suppliers, building property to lease,providing offices, shops, studios, warehouses, workshops and flats to the local area; are you really saying that takes no work, because it does not get ER re its shares?

Everyone thinks running BTL flats is no work, sure, if only 1,2,3 etc flats, try it with 61, I can guarantee you do have to work.

These are all fair points. However the gain that someone makes from eventually selling a BTL property is simply due to the inflation of the property market, i.e. a passive return rather than any value that has been put into building a business. If you could sell a BTL for more than the vacant possession then there would be an argument for allowing ER on that element.

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By DJKL
to jon_griffey
22nd Sep 2017 15:54

Not just from inflation if they sourced the land, obtained the planning , built the properties- there are valuation uplifts all along the chain.

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By DJKL
to jon_griffey
22nd Sep 2017 19:34

Duplicate

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By 0118295
to mabzden
22nd Sep 2017 10:29

My entire financial planning for retirement, delayed by years thanks to cashing in my pension to help keep the bankers afloat, has been based on the lower CGT rates guaranteed by ER.

These public servants have no understanding or appreciation of personal sacrifices many of us make in private manufacturing businesses.

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21st Sep 2017 13:03

It would make more sense to give (carefully targetted) tax incentives to people to set up new businesses rather than give a tax advantage to someone who has, by definition, made money.

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21st Sep 2017 15:02

I have never in my professional life EVER had a client starting up a new business asking how much tax will be due on selling it.

That is very far removed from the consideration of entrepreneurs. They are into growing businesses, the making money bit tends to be down the list, and as for selling and tax, its rarely in their thought processes.

The only time that raises its head is when the client is thinking about selling up and doing something else (some sort of roll over relief seem sensible for those clients) or retiring.

At no point has a client said "thank goodness it's only 10%, or I would not be able to retire"

I see no reason for the 10% rate to exist.

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21st Sep 2017 16:34

Scrap it!

If we are serious about simplifying the tax system using it to encourage certain types of behaviour and discourage others must stop!

Having said that simple taper relief:-
"For every complete year of ownership deduct 1/20 of the gain". Would work, but the legislators would no doubt make the rules run to many pages!

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to Vaughan Blake1
21st Sep 2017 16:58

Vaughan Blake1 wrote:

Scrap it!

If we are serious about simplifying the tax system using it to encourage certain types of behaviour and discourage others must stop!

We aren't serious about simplifying the tax system are we ?

Tax simplification for HMRC is shifting everything to cash basis so that they can use less well-trained staff.

Tax simplification for MPs means producing 800+ pages of legislation every year.

It's nonsense to start a post by saying "If we are serious about simplifying the tax system". It invalidates everything you say after that.

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to lionofludesch
22nd Sep 2017 09:48

Sorry, I will make my irony less subtle in future!

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By Maslins
21st Sep 2017 16:52

What ireallyshouldknowthisbut said, and I say that as someone who has benefited both directly and indirectly from ER.

Entrepreneurs (I hate that term) aren't encouraged to start based around tax rates on selling their businesses.

All ER does is mean that those who can most afford to pay large amounts of tax (as they've just sold a business for £X'000s) suffer it the least.

Should they be patted on the back? Well, yes, but I would hope that keeping maybe 60-70% of what they sold the business they started from scratch for would do that quite nicely.

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By cfield
21st Sep 2017 16:54

The only reason Alistair Darling dusted off the old retirement relief rules and dressed them up as ER is because he miscalculated when he abolished taper relief.

He thought it was good PR after the media got hysterical about private equity partners paying less tax than their cleaners. He was playing to the gallery, and was taken aback by the uproar from self employed people who'd spent their lives building up a business and were now facing a huge tax bill on their retirement nest eggs.

Cue more good PR - let's bring in a special relief for entrepreneurs so we can say we're encouraging people to start new businesses. Existing business owners can claim too. That should shut them up. Of course, the 12 month qualification period betrayed its real purpose.

By all means scrap ER, but only if they bring back RR and preferably TR too.

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to cfield
22nd Sep 2017 10:40

"By all means scrap ER, but only if they bring back RR and preferably TR too."
Agree re ER & RR, but why not go the whole hog and just reinstate indexation allowance for all

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By cfield
to Peter Cane
22nd Sep 2017 11:13

Peter Cane wrote:

but why not go the whole hog and just reinstate indexation allowance for all

Because then they wouldn't be able to depreciate the pound and inflate our way out of our debts without giving the taxpayers their slice of the action.

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By Matrix
21st Sep 2017 17:11

It isn't 10% though, it is 28% since CGT is paid on post tax profits. The CGT is less than paying higher rate tax on dividends, but still higher than paying basic rate tax on dividends.

The main beneficiaries are contractors who survive on £40k (or £100k for my flash ones), have saved the rest in their limited companies and then pay 10% on exit when they go back to employment.

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21st Sep 2017 18:06

Surely the starting point should be to see if there is any empirical evidence that the billions spent on this relief does any good for the economy and how much money, if any, comes back to the Treasury in the form of tax on extra income etc. Is there any value for money research on ER? You are the journalist Miss Adams. Get digging.

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22nd Sep 2017 11:08

Of course entrepreneurs start a business with the thought of how they will benefit society first...they don't give any thought to making money. It is at best an indirect consequence of their wish to expand/grow...make more money (on which some still avoid paying tax on in the UK.).

If you want to find a business that 'creates jobs for the benefit of society' look no further then the government, of course they pay top dollar, occupational pensions etc...something many of our lorded entrepreneurs probably don't. Should we be patting the government on the back.....

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22nd Sep 2017 11:23

Somehow I have missed something. The growth in a business comes from re-investment of taxed profits and entrprenuural flair (flair) and luck. We tax profits, we dont tax luck (Lottery) so we tax flair. Flair is the only difference. If you dont want to take chances and use flair you take a job, The country needs real flair so the CGT rate of 10% looks high in my opinion.

Is it worth having this discussion over £2bn. I understand the losses on benefits are much higher so the first place to start is to cut out the illigal claims and make HMRC work harder to reduce overpayments.

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By hiu612
22nd Sep 2017 11:30

Keep it, but re-write it. In its short life it has quickly become complex and intricate to quite unnecessary extents. At least twice in the last year I've found myself scratching my head at the thought, in the case of two separate family ventures where some form of transaction was taking place, that the only person amongst the shareholder group who won't benefit from ER is the entrepreneur. Whilst the relatively passive investor family members seem as though they'll qualify.

It is absolutely right that tax stimulus to encourage perceived good behaviour should exist, and ER (and BATR before it, and RR before that) are rightly within that class of relief.

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22nd Sep 2017 16:55

Like most modern day legislation, introduced by technical, utopian, rhetorical dullards,{ ''turds'' } scope for perceived abuse is now part of the system.
So the question is ......Abolish .....Remain ......or Rewrite ?
{Sorry ; I thought you were talking about Brexit.}
The answer must be to find a way of flushing out the turds.

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