Labour’s threat to entrepreneurs’ relief

26 November 2019

Labour’s tax plans have alarmed most of the UK business community, with large and small companies, alongside City institutions, coming together to say that the plans will stunt business innovation and potentially harm the economy.

Laurence Whitehead, our corporate finance partner, has noted one area of particular interest for the M&A community, being Labour’s plan to scrap entrepreneurs’ relief.  This tax break allows business owners to pay a lower 10% rate of capital gains tax when they sell qualifying assets, compared with the normal 20% rate. Introduced in 2008, the relief has allowed many business people to successfully pursue genuine entrepreneurship. 

UK's booming start up culture with the aid of entrepreneurs’ relief

Since its introduction, the UK has seen a booming start up culture. There are now more than five million private companies. Many of these are the main drivers of business growth and there are a plethora of venture capital funds willing to invest in them. Thanks to entrepreneurs’ relief, as well as other great initiatives like the Enterprise Investment Scheme (EIS), the Seed Enterprise Investment Scheme (SEIS), and the “patent box”, the UK is arguably one of the most welcoming major economies for entrepreneurs. As a result of these innovations, hundreds of thousands of new businesses have been founded and the owners of these businesses are employing record numbers of people.  

Laurence comments:

“It would appear somewhat questionable to put these great initiatives and this great entrepreneurship at risk right now, given that we still have Brexit hanging over us and that we are also facing a number of macroeconomic and geopolitical issues which are affecting the global economy. It will be interesting to see just how this pans out if Labour form a government after the election and whether this plan really will affect only those that the party leadership wishes them to. Most business owners are not super rich and it therefore seems a shame that any policy maker would want to take away a major incentive for entrepreneurship, given the risks that such business owners take to found and grow their businesses, and to employ others as part of this process.”

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