A think-tank has branded Entrepreneurs’ Relief as expensive, ineffective, and regressive and called for its repeal.
The analysis, published by thinktank the Resolution Foundation, argues that the relief has led to no increase in entrepreneurship, it benefits only the wealthy and is disproportionately expensive.
The move, however, could impact IFAs who support entrepreneur clients during the sale of their businesses.
How much is it worth?
Entrepreneurs’ Relief, which was introduced by the Labour government in April 2008, allows people selling companies to pay half the normal rate of capital gains tax (10% rather than the current top rate of 20%) on up to £1m ($1.3m, €1.1m) of gains.
It was extended by the succeeding coalition government, which raised the maximum capital gains that could be tax relieved to £10m.
Adam Corlett, senior economic analyst at the Resolution Foundation, said: “The UK’s £2.7bn Entrepreneurs’ Relief is hugely expensive and overwhelmingly benefits a small number of wealthy individuals. There has also been no serious evaluation of the relief, despite it costing £22bn over the past decade.
“As the Treasury wrestles with how to raise revenues to fund the prime minister’s pledge of £20bn for the NHS, they should start by scrapping this expensive, regressive and ineffective tax relief.”
Expensive
According to the analysis the cost of the relief is 10 times its planned cost. The tax break cost £2.7bn last year.
Regressive
Researchers found that 82% of the beneficiaries are men in their 50s.
Six thousand made claims on gains of over £1m, benefiting, on average, £450,000 each.
Ineffective
Cumulatively, the cost of the benefit has been £22bn despite the fact entrepreneurs told the foundation they weren’t aware of the benefit, while they were building their business, nor did it influence any decisions they made while it grew.
The number of self-employed people who have employees has remained at or below 600,000 since 2010.
What is the Resolution Foundation?
Founded in 2005 by Sir Clive Cowdery, the Resolution Foundation publishes non-partisan research and analysis focusing on issues affecting low and middle-income earners.
It has campaigned on the advice gap, which led to the founding of the precursor to the Money Advice Service in 2010.
Cowdery, who made his £130m fortune in insurance, owns Prospect magazine and funds the foundation’s work through the Resolution Trust.
