An HMRC spokesperson said: “We want a tax system where everyone pays their fair share, while also ensuring supporting investment and growth.” But Sir Edward Troup, their Executive Chair from 2016 to January 2018, has recently called for the Entrepreneur Tax to be abolished by whoever wins the General Election.

What is Entrepreneurs’ Relief?

If you qualify for Entrepreneurs’’ Relief, you are able to reduce the amount of Capital Gains Tax you pay when you sell part, or all, of your company to 10%. This is half the usual Capital Gains Tax amount. It applies to any amount up to £10million.

Gordon Brown’s Labour government introduced the tax relief in 2008, but it had a much smaller ceiling of £1miilion. After several incremental increases over the years, the £10million cap was decided in 2011 by the Conservative-Liberal Democrat coalition government.

Some of the eligibility criteria:

  • You must be a sole trader or in a partnership.
  • The business has been owned by you for at least 24 months before any sale takes place.
  • In the two years before selling any shares, the company has been trading.
  • Whoever is selling the shares must be an employee or officer of the company, with this being the case for two years before the sale.
  • The individual selling the company’s shares must own a minimum of 5% of the ordinary share capital. The conditions of this share ownership must give them at least 5% of: the net assets (when wound up), distributable profits and votes.

There are a host of other details included in HMRC’s guide to Entrepreneurs’ Relief that account for different types of business.

Why has Entrepreneurs’ Relief become so controversial?

Let’s consider some of HMRC’s figures from the 2017-18 tax year.

  • £33.7billion income from Capital Gains was made by 9,000 people.
  • They paid a combined total of £5.1billion Capital Gains Tax.
  • This is an average of 14.8% tax payment.
  • Had they paid the full 20% Capital Gains Tax, the Treasury would be £2.2billion better off.
  • 62% of all these Capital Gains receipts were from individuals that had made at least £1million (from their Capital Gains).

So, people that earned over £1million (at least) paid an average of 14.8% tax. A 5.2% lower tax rate than the 20% basic rate of income tax that most of us pay on our £12,001 – £50,000 annual earnings.

Is that fair?

Sir Troup doesn’t think so. As reported by The Guardian, he said in a tweet: “This inequity would be almost entirely eliminated by the abolition of entrepreneurs’ relief. It gives £2bn CGT savings every year to those who have already made their gains and provides no incentive for real entrepreneurship.”

The whole point of this particular tax relief is to encourage new UK business enterprises. But, he said that in reality it had “minimal impact on encouraging entrepreneurship in the UK”.

“The point of entrepreneurs’ relief is that it rewards you when you make a lot of money. There are lots of things getting in the way of people becoming great entrepreneurs in this country, but the fear of tax on future gains is not one of them. Absolutely, the government should be helping [entrepreneurs] set up great businesses here, but the idea that having to pay more tax at the end is preventing their inventing things is nonsense.”

Will anybody listen to Sir Troup?

At this time, none of the political parties have committed to any specifics about how they will handle the future of Entrepreneurs’ Relief, should they win the General Election. Like many issues affecting our national and personal financial situations, we’ll have to wait and see.