“The UK needs to back entrepreneurs for a healthy economy but the changes announced today to Entrepreneurs’ Relief could very well result in putting people off taking the risk in backing young companies.
“On the one hand, we can understand why the Chancellor has clamped down on a rule that management teams have been able to sidestep. Currently, Entrepreneurs’ Relief allows entrepreneurs to enjoy a 10% tax rate on capital gains they make on shares in a company they work for. There is a lifetime limit of £10m of capital gains and the company must be a "personal company" for the entrepreneur which means they must pass a test that they own 5% of the shares.
“However, it has become common for members of a management team who do not individually pass the 5% test to team up with others to form a "management company" which owned in turn at least 10% of the trading company nominal share capital under the rules relating to "joint ventures". These rules have allowed for the same rate of tax relief as Entrepreneurs’ Relief but this will no longer be possible.
“So in the context of tax rules, it is understandable for the Government to specify that only individuals meeting the 5% rule should enjoy the 10% on capital gains, but we question whether the enforcement of this rather arbitrary level will put people off of backing a management buy-out. This would be a real pity and potentially put the brakes on incentivising the very people we should be supporting in creating a more entrepreneurial Britain."
Angela Pink, KPMG Communications executive
T: +44 (0)207 694 2679
M: +44 (0)7958 924 188
KPMG Press Office +44 (0)207 694 8773
Follow us on twitter: @kpmguk #budget15
KPMG LLP, a UK limited liability partnership, operates from 22 offices across the UK with approximately 12,000 partners and staff. The UK firm recorded a turnover of £1.9 billion in the year ended September 2014. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 155 countries and has 162,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.
This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.