Indeed, amid wide speculation of changes to be made to Entrepreneurs’ Relief by Mr Sunak, we have been busily dealing with group reorganisations and various transactions for a number of clients to “bank” said 10% rate before 11 March. I t’s Westminster’s worst kept secret that Boris has never been a great fan of Entrepreneurs’ Relief. His priority is to raise funds to get 5G download speeds to the Netflix accounts of voters in the Northern “Red Wall”, and Entrepreneurs’ Relief is nothing if not a costly impediment for government in meeting that goal. Where does our affinity with 10% come from? In his latest book on tax, financial writer Dominic Frisby talks about the ancient practice of giving a tenth of what you earn or produce – or having it taken from you – being adopted across ancient cultures from Mesopotamia, to Egypt, to Greece, to Rome. We tend to think of a “tithe” paid to the church, but the distinction between tithe and tax, and god, king, ruler, Like all taxes: political steps rather than logical steps. The red wall breach means the Tory constituency has changed. As George Bernard Shaw said: “A government that robs Peter to pay Paul can always depend on the support of Paul”. So, here’s the rub. Rishi would be able to badge up a significant reform to Entrepreneurs’ Relief as a scale back of tax benefits for the wealthy, and a return of some of that £2.4bn per annum to Treasury coffers for 5G and fast trains.
When it was introduced, the then Chancellor Alistair Darling stated that Entrepreneurs’ Relief would “represent significant help to a lot of small businesses at a cost of around £200m a year”. By contrast, it is estimated that the cost of the relief now exceeds £2.4bn annually with the benefit heavily skewed towards owners of larger businesses. But that aside, there seems to just be something that resonates with us, the great unwashed business owners, about that figure. What is it about 10%? There are other examples where it’s turned up… When I worked in practice in the Middle East I had a lot of colleagues from Pakistan. I remember them talking about Pakistan’s then President, Asif Ali Zardari, the widower of Benazir Bhutto, as “Mr. 10%”. This name arose from the time when he was a minister in his wife’s government, in charge of approving government contracts. Critics say the 10% and other kickbacks produced millions for the Zardari-Bhutto family. Gordon Brown announced in 2007 that the 10p starting rate of tax would be abolished from April 2008. He even tweaked the personal allowance to compensate low-income tax- payers affected, to make sure they were actually better off. But nonetheless he never lived down the “abolition of the 10% rate” and would uncharacteristically later go on to admit the mistake. Note to Rishi: woe betide any Chancellor that meddles with 10%.
church and government, has been far from clear over history. Often, they have been one and the same. It’s even in the Bible: “He will take a tenth of your grain and of your vintage and give it to his officials and attendants. Your male and female servants and the best of your cattle and donkeys he will take for his own use. He will take a tenth of your flocks, and you yourselves will become his slaves. When that day comes, you will cry out for relief from the king you have chosen, but the Lord will not answer you in that day.” 1 Samuel 8:15-18 Some scholars argue simply that ancient cultures arrived at the figure of one tenth because we have ten fingers, and it is therefore a natural number. As it stands, Entrepreneur’s Relief applies a reduced CGT rate of 10 per cent to the first £10m of qualifying gains. It can be applied over any number of disposals and the £10m cap is a lifetime limit. But in practice the link to entrepreneurship has been as vague as my ten finger theory. A number of groups have expressed concern that there is little or no evidence that Entrepreneurs’ Relief encourages entrepreneurialism, let alone serial entrepreneurialism When Darling introduced it, it was on the back of an outcry at the abolition of Taper Relief (previously available to business owners on the sale of business assets). Taper Relief had in turn replaced Retirement Relief.
However, at the same time he can’t afford to be seen as bashing entrepreneurship in this age of post-Brexit innovative and swashbuckling “Global Britain”. And, as we have seen, it would be folly to change the 10%. History says that the 10% headline has to survive somehow if a repeat of George Osborne’s controversial 2012 political pasty tax on takeaway hot food (which was then scrapped) tis to be avoided. I could be wrong, and by the time you read this you will know, but my betting is on the evolution (rather than the abolition) of what we have, to some sort of “Serial Entrepreneurs’ Relief”. Another political step and level of complexity in our tax code. Any gains made to be sheltered, provided they are recycled in to a new qualifying venture. Anything not reinvested in this way is unrelieved and taxed at the standard CGT rate. But any cash that comes out after two (or perhaps three) rounds of reinvestment will meet the criteria to be relieved and taxed at yes, you’ve guessed it, 10%. If you are going through a business transition process such as a management buyout, merger or acquisition or are thinking of selling your business, Scrutton Bland have corporate finance advisers who can help. Contact Luke Morris at hello@scruttonbland.co.uk or call 0330 058 6559 .
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