As we expected, the government have reviewed Entrepreneurs’ Relief (ER) (which subject to certain qualifying criteria reduces the rate of Capital Gains Tax (CGT) from 20% to 10%) and have decided to reduce the lifetime allowance from £10m to £1m with immediate effect. The government commented that this will “help ensure that the tax system is fair and sustainable while leaving over 80% of those using the relief unaffected”. However, how this will affect the UK’s M&A market over the next few months will have to be seen.
In any event, the reduction in ER relief may not be as drastic as it sounds. With proper tax planning, for example, by splitting business ownership across family members and/or trusts, could be a way to spread the tax liability and thereby ensure that the proceeds fall within the new lifetime allowance. There are also other options to be considered, such as investing in Seed Enterprise Investment Schemes (SEIS) and Enterprise Investment Schemes (EIS) which allows you to defer any CGT as well as using Employee Ownership Trusts which can reduce the CGT to nil.
The budget contained lots of spending targeted at developing the UK’s digital infrastructure and to invest in innovation, including:
Some of this investment will be funded by the increase in R&D tax credit from 12% to 13% as well as from providing the British Business Bank with resources to make additional investment in UK venture capital and growth finance in 2020-21. Further funding of £900m is to be made available to ensure that UK businesses lead the way in high-potential technologies, some of which forms part of the wider £1bn funding to develop UK supply chains the large-scale production of electric vehicles.
This is great news for the UK Tech Sector and will benefit many of our client’s that operate within this sector, especially those in harder to reach parts of the country. It will mean that smaller businesses should be able to access the necessary funding to operate on the much larger global stage. This should hopefully put the UK in a leading position internationally with regards to Tech innovation and lead to more external investment into the UK to develop new Tech businesses.