Budget 2020: Chancellor cuts entrepreneurs’ tax break

The lifetime allowance will now be reduced to £1 million.

The government has announced a shake up the entrepreneurs’ tax relief system. In his first budget since becoming chancellor, Rishi Sunak said that while Entrepreneurs relief will remain in place, the allowance will be significantly reduced.

Currently, the relief reduces capital gains tax payable on the sale or disposal of a business from 20% to 10% and is capped at £10 million over someone’s lifetime.

Sunak, however, announced that this lifetime allowance will now be reduced to £1 million. The chancellor said that 80% of those that make use of the allowance will be unaffected. It was also announced that £130 million of increased revenue from the reduction in the allowance will be used for start-up loans.

Changes to the entrepreneur tax relief was widely expected, as Money Observer noted in our 2020 Budget predictions article. However, as Jason Hollands, managing director of Tilney Group notes: “Many expected it to be abolished entirely.” But with the chancellor instead reducing the lifetime allowance, Hollands points out “the numbers losing out as a result will be tiny.”

Not everyone, however, was so sanguine. Steven Cameron, pensions director at Aegon notes: “For some planning to use the sale of their business to fund their retirement, the dramatic reduction in entrepreneurs relief will come as a harsh blow.

“While too late for those about to retire, for those at younger ages, the message is not to risk all your retirement plans in a vehicle which could suddenly lose its tax advantages.”