A members Voluntary Liquidation enables shareholders to receive distributions as capital rather than dividend income without limit, thus enabling them to take advantage of Entrepreneurs’ relief.
Which brings onto the question of what is Entrepreneurs Relief?
Entrepreneurs Relief (“ER”) is a valuable tax relief that reduces capital gains tax payable to 10% (instead of 20%) on the disposal of qualifying assets i.e. shares providing certain qualifying conditions are met
For more information on the terms of qualifying for Entrepreneurs Relief, please see HM Revenue and Customs Entrepreneurs’ Relief (Self Assessment helpsheet)
Entrepreneurs Relief and the Budget?
Entrepreneurs Relief reduces the tax on disposal of qualifying assets to 10%, it has been criticised as being excessively generous to people who are already rich, and as ineffective in incentivising entrepreneurs to start businesses.
It was much anticipated that the relief would be abolished completely as there has been speculation for a number of years, but the Chancellor decided against the abolishing it altogether and reduced the lifetime amount of eligible chargeable gains from £10 million to £1 million with effect from 11 March 2020. The £1m limit announced brings the relief back down to its original level when it was first introduced in 2008
This may impact on the net cash available to business owners who sell shares in their trading company or sell part of their business.
This should not be confused with ‘Investors Relief’ which is for external investors in qualifying trading businesses, where there is no charge to the £10 million limit for this relief.
BUDGET FOR CORONAVIRUS
The measures complemented the emergency rate cut from the Bank of England and provide financial bridge during the outbreak, these measure include;
OTHER KEY BUDGET MEASURES
Most of the extra spending announced is on day-today departmental expenditure covering nurses, policemen etc.
We summarise the main points for business owners below.
National Insurance – current threshold sees employees and self-employed paying contributions once they earn £166 a week, equivalent to an annual salary of £8,632 a year. From April, you start paying when earning £9,500.
According to the Institute for Fiscal Studies this means 500,000 people will no longer have to pay tax, and those paying, will up to £85 per year better off.
Employment Allowance – will increase from £2,000 to £4,000 in April. This means eligible businesses and charities will be able to claim a greater reduction on their Secondary Class 1 National Insurance Contributions liability.
Entrepreneurs' Relief – Was not fully abolished as widely predicted, and instead has been delayed to November. However, the lifetime allowance was reduced from £10 million to £1 million for qualifying disposals mad on or after 11 March 2020. There are special provisions for transactions and elections designed to bank the £10 million lifetime limit prior to the change.
Corporation Tax – no change as the rate remained at 19%
Pension Tax for Higher Earners - Threshold for income will be increased from £150,000 a year to £200,000 (including salary and the value of pensions earned).
Other budget points include