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Capital Gains Tax: Chancellor caps entrepreneurs' relief

Rumours about the demise of entrepreneurs’ relief were greatly exaggerated as the relief survived Budget 2020 with a reduced £1m cap.

11th Mar 2020
Tax Partner Newby Castleman LLP
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CGT and corporation tax

Changes to entrepreneurs’ relief had been widely predicted in the run-up to the Budget, with some high-profile campaigners calling for the relief to be abolished. The Chancellor stopped short of scrapping entrepreneurs’ relief altogether but, from 11 March 2020, the lifetime limit on gains which qualify for the 10% tax rate under entrepreneurs’ relief is reduced from £10m to £1m.

According to government research, this will mean that over 80% of taxpayers using the relief will be unaffected by the reduction in the lifetime limit. Gains above the lifetime limit will be charged at the standard rate of capital gains tax of 20%.

Anti-forestalling measures apply to counter arrangements seeking to benefit from the £10m lifetime limit, typically where an unconditional contract is entered into before 11 March 2020, but the disposal is completed after that date. 

In such circumstances, the usual timing rule for disposals in TCGA 1992 s 28 is disapplied, and the disposal is treated as taking place at the time of completion, rather than exchange, for the purposes of determining the appropriate entrepreneurs’ relief lifetime limit. 

There are two important exceptions to this rule: firstly, where the disposal is between unconnected persons, and there was no tax advantage motive in entering into the contract; and secondly, where the disposal is between connected parties, the contract was entered into for wholly commercial reasons and not to obtain a tax advantage.

In each of these two cases, the person making the disposal is required to make a claim including a statement confirming that the disposal did not have a tax advantage motive, and (for connected party disposals) that the contract was entered into for commercial reasons.

There is no mention in the Budget documentation of any similar move to restrict the lifetime allowance for investors’ relief, which is broadly similar to entrepreneurs’ relief, but aimed at non-employee shareholders who have subscribed for shares in trading companies.

Annual exemption

The capital gains tax annual exemption will be increased to £12,300 from 6 April 2020 (£6,150 for trustees).

Private residence relief

As previously announced, a number of changes are being made to private residence relief from 6 April 2020. The principal changes are a reduction in the ‘final period’ exemption from 18 months to nine months, unless the homeowner is moving into residential or long-term care, and the restriction of lettings relief to situations where the homeowner occupies the property alongside tenants.

Budget

Replies (2)

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By petestar1969
12th Mar 2020 11:13

I can't believe I heard a Tory Chancellor say yesterday that something which encourages entrepreneurship by giving a tax break is "unfair".

This is a bonkers idea.

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Replying to petestar1969:
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By Justin Bryant
12th Mar 2020 12:16

But in my view not as bonkers as the anti-forestalling legislation.

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