It seems that the combination of recent rises in income tax, imminent reductions in corporation tax and the increase in entrepreneurs’ relief adds up to an environment where there is more reason than ever to retain profit and grow value in a trading company,” said Charles Olley, tax partner at Price Bailey Chartered Accountants. This is, after all, precisely what the Chancellor wanted to achieve.
The surprise was the increase in entrepreneurs’ relief limit to £5m. In 2009/10 entrepreneurs’ relief was worth at most £80,000 per person. Now, through careful planning, it could be worth £900,000!
Charles Olley explained: “The increase in entrepreneurs’ relief lifetime limit to £5m from 23 June 2010 will obviously be welcomed for some. Note that the old relief limits of £1m pre 6 April 2010 and £2m pre 23 June 2010 still apply for gains realised before 23 June 2010. So businesses can’t go back and re-work those old gains to grab more relief.”
Olley added: “The toughest test for entrepreneurs’ relief is the trading requirement. The taxman’s definition of trading may not be the same as a business’ point of view. Last year any difference of opinion could at worst have meant an argument over £80,000. Not pleasant, but manageable by most with a gain of £1m. Now any disagreement could be over £900,000, a much more serious matter.
It is absolutely essential that those business’ aiming for an exit with entrepreneurs’ relief make sure their company meets the trading requirement. There are lots of techniques for this, including Price Bailey’s unique reconstruction nicknamed the ‘Sideways Punt’, and we expect that there will be increased use of the non statutory business clearance application process. We also might expect HMRC to take a tougher line now that so much more money is at stake.”
The Chancellor’s plans for tackling the UK deficit are now well under way.Price Bailey’s free budget report uncovers some of the key measure as well as the less publicised changes that are most likely to affect your business or your personal finances.
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