The Chancellor’s final Budget before the UK’s scheduled EU exit placed entrepreneurs front and centre and included a clutch of welcome commitments to back them, according to experts at Smith & Williamson, the accountancy, investment management and tax group.
With the promise that “entrepreneurs must be at the heart of a dynamic economy,” the Chancellor outlined plans to resist calls to scrap entrepreneurs’ relief (albeit with changes to the qualifying period), raising the annual investment allowance to £1 million and cutting the business rates bill by a third over two years where the rateable value is £51k or less.
The rate of Capital Gains Tax (CGT) is low, relative to historic rates. Investors currently receive an annual allowance of £11,700 rising to £12,000 in April 2019 and then pay tax at between 10% and 28% on any gain depending on the asset (the highest rates are for residential property).
CGT rates have varied considerably over time and could be vulnerable in the future. Investors sitting on assets showing considerable gains may want to consider selective disposals while rates remain low. Entrepreneurs’ relief reduces the amount of CGT paid when businesses are sold. Entrepreneurs pay tax at 10% on gains of up to £10 million.
There were changes to the conditions to qualify for this relief in the Budget. The new conditions require anyone claiming the relief to be beneficially entitled to at least 5% of the company’s distributable profits and 5% of the assets available for distribution to equity holders in a winding up.
The qualifying period over which conditions must be met was extended from 12 months to two years. However, the relief remains largely intact. Entrepreneurs considering a sale should take note.
To build on the UK’s reputation as one of the best places in the world to start and grow a business, the Government will extend to 2021 the funding of the Start-Up Loans Programme for its British Business Bank (BBB), the UK-wide economic development bank, enabling it to continue providing loans and mentoring to entrepreneurs. The BBB will also benefit from up to £200 million of additional investment in UK venture capital and growth finance in 2019-20 if no agreement is reached with the European Investment Bank Group (EIBG) before the UK leaves the EU on 29 March 2019.
Elsewhere, the Government announced it will provide £5 million to support up to 10 local areas to develop proposals for new University Enterprise Zones, promoting collaboration between universities and businesses, supporting start-ups and scale-ups and sharing management skills.
Ami Jack, national tax director at Smith & Williamson, commented: “This was the Budget that everyone expected amid the current uncertainties in the UK and Europe - reactive, non-reformist and, at least in part, a crowd-pleaser. Nevertheless, the Chancellor did make a series of notable announcements that, taken together, provide a welcome boost for entrepreneurs.
“Some observers worried he would scrap entrepreneurs’ relief, which would have been an unwanted kick in the teeth for business owners at the heart of the UK economy. The Chancellor’s extension of the qualifying period for entrepreneurs’ relief from 12 months to two years is unlikely to affect many entrepreneurs.
“Businesses owners needed the confidence that this government is on their side, so raising the annual investment allowance and cutting business rates bill are positive moves. The Chancellor’s heavily-trailed new digital services tax will be felt by corporations with revenues of more than £500m, although smaller tech companies will take comfort from the fact that it won’t apply to them. In spite of today’s announcement, it’s worth considering that whatever was promised in this Budget could be forgotten quickly if the Chancellor is forced to hold another fiscal event in Spring.”
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.