Entrepreneurs’ Relief changes from £10 million to £1 million

The March Budget saw the Chancellor announce that Entrepreneurs’ Relief is being scaled back from £10m to £1m – how does this affect you?

If you’re a business owner, we’re sure you’ll agree that we’ve all been navigating some interesting challenges in recent times: an election, the Brexit process, the flooding that’s affected much of the UK, and Coronavirus.

To add to this, in the March Budget, we saw the Chancellor announce that Entrepreneurs’ Relief is being scaled back from 10m to 1m, which means the current tax benefit of 10% only applies to the first £1m.

Malcolm Murray, Director of Entrepreneurs Hub, reflects on the news: “As a business owner, you might be asking, “Why didn’t I sell my business sooner?” but it’s important to remain positive and have perspective. There will always be speculation and there’s no greater constant than change, so it’s always important to look at the bigger picture.”

Here are 3 questions that every business owner should consider now that Entrepreneurs’ Relief has changed.

 

1. Is the tax benefit of Entrepreneurs’ Relief the only reason you’d want to sell your business?

“In my 15 years of helping business owners sell their companies, I must honestly say I can only remember one business owner who came to us saying that the tax benefit was the main driver for wanting to sell his business”, says Malcolm.

Interestingly, when Malcom explored further, the fundamental reason for him and his wife was actually that they had built a solid business, but they’d worked themselves into the ground in the process. That was putting a lot of stress on them, so it was time to move onto their next chapter.

The reason most business owners want sell up is because they have come to the point where they know the timing is right for them and their family to exit. It can often be because they’ve lost their passion or the business has become stressful, so they want to move on and turn all those years of hard work into cash.

 

2. Do you wish you had rushed and sold your business just to beat any changes?

If you’re currently in the process of selling your business, then undoubtedly, you would have wanted the deal completed sooner. However, if you hadn’t started the process yet, then the implications of rushing a deal through could have impacted the value of the sale, especially if your company was not fully prepared to be sold.

Only start the sale process because you really want to sell the business. Secondly, only start the process after you have had a review with a reputable adviser who can confirm that now is indeed a good time to go ahead.

 

3. Would you agree that we can’t change the past, but we can change the future?

Selling your business and only paying 10% tax on the first £1m of the proceeds is still an attractive proposition for any business owner.

Not only that, your most lucrative sale is ultimately going to come from the quality of your business. If you can demonstrate strong growth potential, proper record keeping, clean books, written contracts with customers, staff and suppliers, and protected intellectual property then you’re onto a winner, no matter what’s going on with tax benefits.

So, don’t look back, look ahead and take the right steps to ensure your company is adequately prepared for sale and the marketed in the right way, to the right people.

The changes to Entrepreneurs’ Relief may result in you paying more tax when you sell your business and you may be kicking yourself that you didn’t sell up sooner. However, don’t dwell on the past but focus on the future and find opportunities to maximise the value when you exit – your St. James’s Place Partner can help you do this.

 

By taking the time to prepare for exit properly, you might be able to sell your business for £8m instead of £6m. Even paying tax under the new changes will still mean you are better off!


The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

This article is written for the St James’ Place Entrepreneurs Club newsletter. The opinions expressed by third parties are their own are not necessarily shared by St. James’s Place Wealth Management.

Exit strategies may include the referral to a service that is separate and distinct to those offered by St. James’s Place.

This article has been provided courtesy of Entrepreneurs Hub.