Wednesday 11 March 2020 2:30 pm

Budget 2020: Chancellor overhauls entrepreneurs’ relief in tax break shake-up

The government today said it will overhaul entrepreneurs’ relief, but stopped short of abolishing the tax break completely.

Entrepreneurs’ relief is designed to encourage people to start their own business by granting them a reduced rate of 10 per cent capital gains tax.

Read more: Businesses and government in entrepreneurs’ relief row

However, Sunak said the system, which costs the taxpayer £2bn per year, was expensive and ineffective.

The chancellor said he had listened to representations for the tax break to be scrapped completely, but said risk-taking by entrepreneurs should be encouraged.

As a result, the lifetime limit on claims from the relief will be reduced from £10m to £1m — a move the chancellor said would save £6bn over five years.

Sunak vowed to use the money saved by the measures to cut other business taxes.

Mike Cherry, national chairman of the Federation of Small Businesses, described the reform to entrepreneurs’ relief as a “sensible compromise”, adding that his organisation had championed the measures.

“This has been a deliberately pro small business first budget for the chancellor. We hope it is the start of things to come,” he said.

Dominic Perks, chief executive and co-founder of Hambro Perks, said that while the reform to entrepreneurs’ relief felt like a “step back for founders, it is unlikely to have any material impact on entrepreneurialism in the UK.”

“Founders won’t be deterred from starting and scaling companies while the UK remains one of the most attractive places to do business, not just in Europe, but globally,” he said.

The chancellor also unveiled £130m in new funding to extend startup loans to up to 10,000 more entrepreneurs between 2021 and 2022.

Meanwhile, investment in research and development (R&D) will be increased to a record £22bn per year. As a percentage of GDP, this will be the highest level in nearly 40 years — above the US, France, China and Japan.

Read more: Entrepreneurs’ relief: A tax break unravels?

Dom Hallas, executive director of the Coalition for a Digital Economy, said the Budget was a “strong signal to innovative British tech startups that this government is for them”.

“But there’s still lots more to do to really turbocharge the tech scene, and the devil will be in the detail of a number of consultations announced today on the future of regulation, improving R&D incentives and improving Britain’s offer on share options as well as the big elephant in the room — the government’s future trade negotiations.”