Entrepreneur's Relief increased to £2m

In the 2010 Budget of March 24th, Alistair Darling announced that the upper limit of Entrepreneur's Relief will be increased from £1 million to £2 million. This is welcome news for anyone who is looking to sell their business, especially if it is valued in the £1m - £2m range. The potential extra tax saving is £80,000.

The Chancellor gave other tax concessions to businesses in the form of business rates reductions and increased investment reliefs for plant and machinery. But Entrepreneur's Relief is the crucial one for people looking to sell their business(es). At present, if someone sells their business for up to £1m then, subject to certain criteria, they will only pay 10% capital gains tax (CGT) on the proceeds. This is a once-a-lifetime relief, mainly aimed at long-serving business owners who sell in order to fund their retirement. The relief can, however, be spread across a number of smaller business sales. Given that the marginal rate of capital gains tax is 18%, this remains a valuable relief worth a total of £160,000.

Moreover, given the pre-budget rumours surrounding the possible rise in the standard CGT rate and the perception that capital gains tax is really only paid by the wealthy, CGT will be no doubt be looked at closely after the election. Whilst there is every reason to suspect that the marginal CGT rate may well increase in the next year or two, it would be surprising if the 10% Entrepreneur's Relief rate were to also rise. In this scenario, the differential between Entrepreneur's Relief and the CGT rate will widen, increasing the potential tax savings. It should be noted that the annual CGT allowance has been frozen at £10,100.

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