Businesses concerned that changes to Entrepreneur’s Relief could impact exit strategy

Government scheme could become "victim of its own success' after figures show it cost Treasury three times more than estimated

Many small businesses are concerned that Entrepreneurs’ Relief could be a target of post election cutbacks regardless of the result, according to investment firm Connection Capital.

Entrepreneurs’ Relief grants shareholders a lifetime allowance of £10m, taxed at a reduced rate of 10% – compared to 28% for higher rate tax payers, if they own at least 5% of a company as employee or director when they sell all or part of their stake.

Connection Capital has said that serial entrepreneurs and small business owners are becoming increasingly concerned that the government scheme could become “a victim of its own success”; penalising those wishing to make a successful exit.

The concerns have been raised in light of recent figures which show that the tax incentive has cost the treasury an estimated £2.9bn last year, three times the original projection of £900m.

The scheme was absent from both Labour and Conservative manifestos, creating uncertainty about what policies will be implemented if they are elected. The Liberal Democrats has said it plans to “refocus” Entrepreneurs’ Relief to help reduce the deficit.

Claire Madden, partner at Connection Capital said: “As the election gets closer, speculation about whether Entrepreneurs’ Relief will be scaled back is intensifying. The publication of the three main parties’ manifestos has done nothing to allay small businesses fears, whether it’s been mentioned specifically or not.

“While this might seem a fairly soft target for tax cuts, this tax break doesn’t favour the super-rich that have built up multimillion pound empires – the lifetime allowance restricts its benefit. But it does reward those who have worked hard and taken risks with their own capital to build up a business, no matter what size.

“It would also be an economic own goal. The reality is that the “cost” of Entrepreneurs’ Relief demonstrates value to the economy. Politicians should celebrate its success, and resist any attempts to backtrack.”

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