Should entrepreneurs act quickly to save tax? - Resolve Group UK

Should entrepreneurs act quickly to save tax?

Resolve Group UK

Should entrepreneurs act quickly to save tax?

Proposed changes to the tax relief currently available to entrepreneurs could mean a significant reduction in income when the business is sold, if implemented. Those who could be negatively affected may want to consider exiting their business early, using a Members’ Voluntary Liquidation (MVL) process, to protect their returns.

A Members’ Voluntary Liquidation (MVL) is a formal process for closing down a solvent company in a cost-effective, tax-efficient way. It is often used as a means to exit viable businesses where shareholders wish to take out the profits of their investment, or if the business has simply come to the end of its useful life and directors wish to formally close the company.

Under current tax rules the entrepreneurs tax relief, introduced by Alistair Darling more than ten years ago, means that in certain conditions small business owners pay a discounted 10% rate on Capital Gains Tax (CGT) rather than the usual 20% due under standard CGT when they exit their enterprise, up to a lifetime maximum of £10 million.

Recent statements by the Prime Minister, and reported in The Times on 18th January suggests that the Treasury is against this entrepreneurs’ tax relief and that it may be scrapped in the budget in March 2020.

Speaking to a group of female entrepreneurs in his home constituency of Uxbridge, Boris Johnson is reported to have said:

‘I have to tell you the Treasury is fulminating against it because there are some people who are staggeringly rich who are using that relief to make themselves even more staggeringly rich.’

Whilst there is no absolute evidence that this will go ahead, speculation is rife and growing.

Entrepreneurs may wish to consider an earlier exit from their investments in order to guarantee the current level of tax relief.

If you are amongst those who may be affected please contact us to discuss options.

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