Entrepreneurs' relief

In the United Kingdom, entrepreneurs selling their business (technically "qualifying assets") can claim entrepreneurs' relief.^[1] This is a lifetime allowance of £10,000,000 of gain that will be taxed at a reduced rate of 10%. To be eligible, a shareholder must have a 5% or more shareholding, and have been involved for a year or more with a company as an employee or director. Capital distributions from a limited company can occur as a result of a member's voluntary liquidation, and resulting profits are subject to CGT. Return of share capital following a resolution at the AGM is not classed as capital gains.^[2]

Entrepreneurs' relief was raised to £2 million in the March 2010 budget,^[3] and then to £5 million three months later by the new Conservative/Liberal coalition government. In the March 2011 budget it was raised to £10m.^[4]

In the opinion of the Resolution Foundation entrepreneurs' relief is expensive, regressive and ineffective. Scrapping the tax relief could generate £2.7 billion that could be spent on the public sector. The Resolution Foundation maintains this tax break is enough to give £100 per year to every household in the country if it is abolished. Roughly 52,000 individuals benefited from the tax break in 2015-16, but the chief financial gain was for a few very wealthy people, with about 6,000 claiming over £1m each. The overall cost of the tax relief over a decade was roughly £22bn though its effectiveness has not been seriously evaluated. Most entrepreneurs who claim the tax break say they did not know about it when they started their company, the foundation maintains.^[5]

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