Reports suggest that the chancellor of the exchequer may use the spring Budget to scrap entrepreneurs' relief.
The Federation of Small Businesses (FSB) has warned that scrapping entrepreneur's relief will hit small business owners that were planning to sell their business to fund their retirement. He has called on chancellor Rishi Sunak to stick to the Conservative Party manifesto pledge to "review and reform" the incentive.
"Scrapping entrepreneurs' relief would make a mockery of the idea that it's ever sensible to build up a business rather than investing in property, land or securing a gold-plated pension," said Mike Cherry, FSB national chairman. "Everyday entrepreneurs throughout the country who are about to retire will be left permanently poorer by this change."
According to the FSB, only around 10% of people who claim this relief are selling businesses worth more than £1 million. "The vast majority of those who benefit from this incentive - 38,000 each year - are everyday entrepreneurs, those who see their business as their retirement plan, and who would lose an average of £15,000 each as a result of this change. This move would mark an incredibly damaging way of telling anyone thinking of investing in their business not to bother.
"The Conservative Party made a clear commitment to reform - not scrap - this relief in its general election manifesto. They should keep to their word. Sensible reform would involve refocusing entrepreneurs' relief so that it only applies to the first £1 million of business sales. Doing so would protect the vast majority of those who benefit from this incentive each year."
FSB research has found that the annual cost of the incentive to the Treasury could be reduced by three-quarters if it was concentrated on business sales of under £1 million.
In the financial year 2017-18, entrepreneurs' relief cost the Treasury £2.3 billion. Of the 43,000 individuals that made use of the incentive, 38,000 claimed relief on business sales of under £1 million, coming at a cost of only £600 million to the Treasury.
In Ireland, those over the age of 55 do not have to pay capital gains tax on disposals of businesses or farms up to the value of 750,000 euros.
FSB national chairman Mike Cherry said: "Scrapping entrepreneurs' relief would destroy the retirements of thousands of business owners … The solution is obvious: keep the relief for the first £1 million of a business sale and scale it back at the top end. Doing so would save the Treasury more than £1 billion and maintain a vital incentive which encourages entrepreneurs to start-up, hire and invest.
"A lot of entrepreneurs see their business as their retirement plan … Scrapping entrepreneurs' relief will make a bad situation worse. Fundamentally we want to make the UK a more, not less, attractive place to start-up a business. If this incentive goes, we risk losing entrepreneurs to other climes."
Written by Rachel Miller.