When I started my career in tax, we had Retirement Relief; very few people will remember it. Then we had Business Asset Taper Relief; some of you will remember that. Now we have Entrepreneurs’ Relief; but for how much longer?
According to a recent article in The Times, this “loophole” (really? It is a Government incentive backed by comprehensive legislation) has “scandalised tax experts for years” and cost the exchequer more than £2bn each year.
For the uninitiated, Entrepreneurs’ Relief effectively reduces the rate of capital gains tax (CGT) on the disposal of qualifying businesses and business assets to 10%. It is designed to encourage enterprise, entrepreneurship and risk-taking. It helps people to recycle businesses, to bring in new management with fresh ideas, to breed a generation of serial investors (the lifeblood of many early-stage businesses) and to take risks that they might otherwise not be minded to take. It breeds multiple Dens of Dragons!
But is the relief now too generous? Many people think it is. I don’t.
Those who criticise it take the “fat cat” view on life. They think that all it does is reward the wealthy who have already made their riches and doesn’t really encourage entrepreneurship. Really? What about all the new jobs it creates, with the associated tax-take for the exchequer. What about the VAT and duties it generates? What about the physical and mental well-being it engenders in people involved with a thriving, new, exciting business?
Some people go as far as to say that the tax system shouldn’t have a part in rewarding and incentivising entrepreneurship? Fine, if we want a nation of 9-5 workers, and to rapidly fall away as a nation fit to compete on the world stage.
Whatever/whoever is in power in government in the months ahead, examine the system by all means. But please don’t make hasty decisions. Consider it in the round, along with incentives such as SEIS/EIS, R&D tax credits, Patent Box, EMI share schemes, IHT Business Property Relief etc.
It would be a disaster if misinformed, politically ideology led to hasty and misguided decisions on fiscal policy.