In recent weeks there have been suggestions that there may be change in the air on Entrepreneurs' Relief - see the article below for example. Anecdotally, some sellers in recent M&A transactions have been determined either to complete the deal by the end of March (safely before the end of the last tax year) or if not, then to pause and wait for the outcome of the UK election. The 7 May result and any subsequent political horse-trading may determine whether there is to be a change or even abolition in the current regime for capital gains tax on sales of businesses, which it appears some are concerned about. This concern is not by any means universal, and the signs of possible policy change are not at all clear, but it does seem there is some worry about this in the market. A change in this area would have major implications, and the problem is that while it may take some months before the position is clear (an emergency Budget post-election may not happen until July) it is not impossible that a change in tax law in this area could be back-dated to the beginning of the 2015/16 tax year, i.e. 6 April. Hopefully for current M&A activity involving owner-manager sellers, this will not come to pass, but in the meantime there is a sense of political risk over-shadowing the market just at the moment. Another reason to add to the many that already make the election outcome so interesting.
Given that they drive our economy’s growth, it’s vital that entrepreneurs are rewarded for their efforts – especially since they take on so many risks to succeed. Thankfully, since 2008, there has been a tax relief that does precisely this. UK entrepreneurs operate safe in the knowledge that they can work to create a business without paying penal tax rates when they come to cash in on years of hard work. Recent events, however, suggest that this crucial relief may be under threat. Originally introduced by Labour seven years ago, the Entrepreneurs’ relief lifetime allowance was doubled by the coalition government to £10m in March 2011. However, according to a report by the National Audit Office in November 2014, the cost of the relief has increased to almost £3bn. Subsequent political scrutiny could put its future in jeopardy.