Entrepreneurs’ Relief (ER) is a valuable relief and has been a key factor for many of our flexible workspace clients when considering the sale of their business.

The window for taking advantage of the relief may be closing fast though, with the new Conservative government almost certain to reform it in some way in the next budget. While the Conservative manifesto said it was “proud of the work we have done to support entrepreneurship… we also have to recognise that some measures haven’t fully delivered on their objectives. So, we will review and reform Entrepreneurs’ Relief.”

What is Entrepreneurs’ Relief?

ER was introduced by Gordon Brown’s Labour government in 2008. Its aim was to incentivise people to set up and grow businesses in the UK by offering Capital Gains Tax (CGT) relief once those businesses were sold. It has been tweaked by successive governments over the years but, at present, means individuals pay CGT on the disposal of their shares in a business at the rate of 10% rather than the standard rate of 20%. The maximum lifetime limited was initially £1m but was increased to £10m in 2011.

Further changes to the qualifying conditions of the relief were made by the former chancellor, Philip Hammond, with effect from October 2018. To qualify for ER, an individual now has to hold at least 5% of the ordinary share capital of the company and at least 5% of the voting rights. The ‘holding period’ for shareholders was also extended from one year to two years with effect from 6 April 2019.

ER is believed by some commentators to have played a big part in London and the UK becoming such a thriving hub for entrepreneurial activity over the past decade.

It’s a generous relief though, and critics argue that many of the people taking advantage of the relief aren’t entrepreneurs at all. Rather, they are wealthy individuals who simply use the relief to reduce their tax bills without taking any real financial risk. This isn’t true of our flexible workspace clients who have set up their own businesses, and the loss of the relief would be an expensive blow to them.

There is no doubt that the government is eyeing the £2bn it can receive in additional revenues if the relief is abolished, although whether it will scrap the relief entirely or simply change some of the conditions is not yet known.

Given the fact that some change to ER is inevitable, the only way flexible workspace operators can be certain to benefit from it would be to sell before the new government’s first budget.

If you would like to discuss the sale of your flexible workspace business, please contact Douglas Green on 020 3427 5678 or douglas@gkre.co.uk