Changes to Entrepreneurs’ Relief looking likely

In the run up to Budget 2020, we asked our MHA Moore and Smalley tax experts to preview the first big moment of Rishi Sunak’s chancellorship. In part one, tax partner Tony Medcalf, shares his thoughts on what changes we might expect.

More than anything else, I see this being a budget for big spending and infrastructure announcements. The government has an opportunity to take advantage of historic low interest rates to borrow money to invest in infrastructure projects, particularly in the North.

There are three main ways for a government to generate more revenue – borrowing, cutting costs, and taxation. A new government with a large majority isn’t going to cut costs unless it absolutely has to, and it has already ruled out any increases to the main rates of tax.

Therefore, I think we’re going to see a mix of borrowing and stealth taxes, because if you can’t raise taxes dramatically you’ve got to increase revenue through more subtle tax changes.

I think corporation tax will stay at 19 per cent as the prime minister seemed to rule out lowering it to the previously scheduled 17 per cent during a speech at the CBI conference during last year’s election campaign.

Mr Johnson’s pledge to spend the £6bn saving on public services also seems to rule out the possibility of corporate tax rates falling as low as the 15 per cent mooted during the Cameron / Osborne years.

I can’t see much change to stamp duty as government will be expecting a bounce in economic activity, and more confidence in the housing market, which would reduce the need for a rate change.

We are almost certain to see changes to Entrepreneur’s Relief (the 10% rate of Capital Gains Tax) that have been mooted previously.

This might be lowering the lifetime limit from £10m, or they might look to make the qualifying period longer, for example changing it from two years to five years. This would see us going back toward the old model of taper relied where the longer you own an asset, the less tax you pay.

Alternatively, they may increase the percentage of share ownership required to qualify for the relief. It’s unclear whether these changes would come in immediately after March 11, or whether there would be a ‘notice period’.

It’s true that new governments usually look to make their most dramatic changes early on, so businesses need to be ready for anything.

That said I think this budget is going to be used more to sell the new government’s vision, and I expect to see the chancellor talking about prosperity, investment, confidence and uniting the country.

What the prime minister and the chancellor will really be hoping for here is a new government bounce that may allow them to increase revenue through the economy performing better, rather than them having to do anything too radical.

Click here to read the next installment of our four-part Budget 2020 preview.

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