Anger from small firms as relief for entrepreneurs cut

ENTREPRENEURS face higher bills when they sell a business after a tax break was slashed.

Rishi Sunak said the relief, which costs more than £2billion a year, was expensive, ineffective and ‘unfair’, with three-quarters of the cash going to just 5,000 people.

It allows entrepreneurs to pay just 10 per cent capital gains tax when they sell their company, instead of 20 per cent. Supporters say it encourages risk-taking, but critics claim it mainly helps the wealthy.

Yesterday, Mr Sunak rejected calls to scrap it completely. Instead, the lifetime limit would be cut from £10million to £1million. He said: ‘Just because it is called Entrepreneurs’ Relief, it doesn’t mean that it’s entrepreneurs who mainly benefit. But at the same time, we shouldn’t discourage those genuine entrepreneurs who do rely on the relief. We need more risk-taking and creativity in this country, not less.’

The changes – introduced with immediate effect – will save £6billion over the next five years.

Mr Sunak claimed that only 20 per cent of small business owners would be affected. Entrepreneurs’ relief was introduced under Labour in 2008 with an original limit of £1million. But it was expanded twice by George Osborne, who hiked the lifetime limit to £10million.

The Institute for Fiscal Studies and the Resolution Foundation have been critical of the policy, with the latter branding it ‘quite likely the UK’s worst tax break’.

‘Supporting large numbers of young people when they’re starting up a business might do more for entrepreneurship than giving very large sums to a small number of retiring people,’ senior economist Adam Corlett, of the Resolution Foundation, has said.

However Mark Brownridge, director general of the Enterprise Investment Scheme Association, said: ‘At this very time of economic uncertainty we should be doing all we can to encourage those with the financial capacity to invest in new and growing businesses to do exactly that.

‘Whether or not some may view the tax reliefs available to risk taking and hard-working entrepreneurs as attractive, without them we are likely to see a much poorer entrepreneurial spirit in the UK which the Chancellor may live to regret.’

And Stephen Moss, founder of peer to peer lending firm Sourced Capital, said: ‘A double whammy of lower savings returns as a consequence of the sudden interest rate cut and the wiping away of £9million in lifetime entrepreneur tax relief in one foul swoop. Anyone would think that it was Jeremy Corbyn that got elected in December and not a Tory government.’