Entrepreneurs hoping to sell the business they have nurtured will be a potential £80,000 better off in a surprise move to ease capital gains tax.
Rather than raising the tax, as many had feared, the Chancellor promised a doubling of Entrepreneurs’ Relief from £1 million to £2 million in the Budget.
David Jewkes, tax partner at Grant Thornton in Birmingham, said: “This means that entrepreneurs selling their businesses and qualifying for the relief should only pay 10 per cent CGT on their first £2 million of gains, saving them up to £160,000 of tax as compared to £80,000 previously.
“There is a catch for entrepreneurs who have already claimed for relief on gains of over £1 million in the current tax year.
“Under the proposed change they can not claim additional relief to the new £2 million limit in this current tax year, but need to wait until they realise other gains in the future.”
Many in the city’s financial sector were taken aback by the announcement, including Owen Trotter, partner at Key Capital Partners in Birmingham, who said Alistair Darling may emerge as an “unsung hero”.
He said: “I was pleasantly surprised by the Budget which was unexpectedly pro-business.
“The measures to support SMEs and entrepreneurs, including the doubling of capital gains tax relief, appear to have slipped under Gordon Brown’s radar.
“Alistair Darling may emerge as an unsung hero, amid a jaded Labour cabinet, as he has taken concrete measures to support business in driving forward economic recovery.”
But the announcement left some struggling to find the logic behind the announcement.
Andrew Shaw, national tax managing partner for BTG Tax, said: “It is the first Budget I have ever seen which has darted back and forth between the economy, finances, taxation and public spending – there seemed to be no co-ordination or cohesion.
“What, for example, is the rationale for extending entrepreneur’s relief from £1 million to £2 million?
“Announcements were cooked up to attract certain voters and the rest was hidden under the table.”
Narinder Paul, head of KPMG’s entrepreneurial tax team in Birmingham, said there was always more the Chancellor could do to support entrepreneurs.
“Whilst doubling the entrepreneurs’ relief to £2 million and not interfering with the current low rate of 18 per cent Capital Gains Tax are both helpful in encouraging investment and keeping the UK competitive, the Chancellor could have gone further and relaxed the rules to deliver entrepreneurs’ relief to angel investors.”