Mon, 18 Jul 2022 | BUSINESS NEWS
The government has been urged to take action after figures showed that entrepreneurs under the age of 35 accounted for just 2 per cent of gains made from all UK businesses in the year ending March 31 2020, the last year before Entrepreneurs Relief was cut 90 per cent.
The figures, from private wealth law firm Boodle Hatfield, showed that young entrepreneurs made profits of just £556 million from a total of £28.6 billion made by individuals selling their businesses. Sellers in the 55-64 age bracket, by comparison, made the most, with profits of £10.2 billion, followed by 45-54 year-olds, who made a total of £8.4 billion. Entrepreneurs aged 85 and over, meanwhile, made £1.1 billion.
Boodle Hatfield Partner Hayden Bailey said that the figures showed how most businesses in the UK are sold later in life. Bailey asserted that, in order for the UK to be seen as a hub for young entrepreneurs, more tax relief is needed for businesses owners, rather than investors. It was suggested that this could include giving entrepreneurs more generous tax relief on gains made from selling businesses.
Prior to March 2020, Entrepreneurs Relief enabled people selling their businesses to pay a reduced rate of 10 per cent capital gains tax, as opposed to the usual rate of 20 per cent. This rate applied to lifetime gains up to £10 million. However, from March 2020, this was replaced by Business Asset Disposal Relief, which cut claimable relief by 90 per cent up to a lifetime amount of £1 million.
In the 2019-20 tax year, entrepreneurs aged 24 and under made £27 million in gains from selling their business, accounting for 0 per cent of all Entrepreneurs Relief claimed. Those aged 25-34 made £529 million in gains and claimed 2 per cent of Entrepreneurs Relief. Those aged 35-44 made £3.28 billion and claimed 11 per cent of Entrepreneurs Relief.
The 45-54 age bracket (£8.4 billion in gains) claimed 29 per cent of relief, while 55-64 year-olds (£10.2 billion) claimed 35 per cent. 75-84 year-olds (£5 billion) claimed 17 per cent and those over 85 (£1.1 billion) claimed 4 per cent.
Hayden Bailey of Boodle Hatfield commented: “There is a perception that the UK is an unbeatable hive for start-ups. The UK is getting there but it’s not quite there yet in terms of incentivising young entrepreneurs.”
“More needs to be done to help young entrepreneurs start up and grow a business. That would include tax rules that encourage owners as well as investors, and rules that encourage entrepreneurs to retain and grow their business in the UK, rather than prepare for a sale. The UK needs to be competitive globally in this respect.”
“Young entrepreneurs need to be better supported. Many are creating exciting, innovative start-ups in the UK, particularly within tech and fintech. These businesses will play an important role in growing the economy.”
Boodle Hatfield added that, with the UK facing soaring inflation and interest, as well as a potential recession, more support will be required for owner-managed businesses.
Hayden Bailey added: “Studies have shown that start-up activity is a strong accelerant for the economy. The UK faces many challenges in the months ahead and it’s clear that greater help is needed to encourage longer-term investment in growing a business.”
“Part of the next Government’s vision for a future is likely to be economy built upon a culture of enterprise. Delivering sustainable and responsible incentives in the form of tax reliefs will encourage longer-term thinking among entrepreneurs, in turn boosting economic growth.”
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