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The Chartered Institute of Taxation is calling for ‘greater scrutiny and debate’ about the government’s plans to curb Entrepreneurs’ Relief – to be renamed ‘Business Asset Disposal Relief’.

The Budget 2020 announcement reduced the lifetime limit for gains qualifying for Entrepreneurs’ Relief from £10 million to £1 million for qualifying disposals made on or after 11th March 2020. The government claims it is in response to evidence that Entrepreneurs’ Relief has primarily benefited a small number of very affluent taxpayers and done little to generate additional entrepreneurial activity.

The CIOT has said that it would like to see a broader public consultation about the objectives and efficacy of Entrepreneurs’ Relief to examine the economic rationale and coherence of other aspects beyond the lifetime cap, such as the five per cent ownership condition (where the sale is of a company) and the two-year ownership requirement.

John Cullinane, CIOT Tax Policy Director, explained further, “We hope that MPs will look closely at the Government’s plans for Entrepreneurs’ Relief. This could usefully include asking why the Government’s review of the relief was not carried out in public. It is disappointing that such a significant change to an established relief risks going through the policy process with little independent examination and debate.”

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Cullinane added, “The lifetime limit has increased a few times since Entrepreneurs’ Relief was introduced in 2008 when the original limit was set at £1 million. These have been ‘surprise’ Budget announcements and there is no ‘roadmap’ to provide a background idea of the Government’s thinking or the likely direction of travel.”

“A difficulty for taxpayers who have legitimately taken advantage of reliefs is uncertainty about when the rules for a particular relief might change. There are people affected by the March 2020 Budget change who have reinvested money in the expectation of a relief that they will no longer receive.

“Without transitional provisions such ‘retroactive’ effects are inevitable in a capital gains tax system where there is deferral advantage in that gains are taxed only when realised rather than as accrued. A transparent process of evaluation, conducted as an open consultation or public call for evidence, would have allowed taxpayers greater indication of the direction of travel as a background to their investment decisions and reasonable expectations in the lead up to the Budget.”

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