Scrapping tax break for entrepreneurs would be a mistake, Reeves told

Rachel Reeves has been warned that raising taxes on entrepreneurs when they sell their companies risks damaging business creation.
The UK’s largest employers’ group said that entrepreneurial activity could “grind to a halt” if a capital gains tax relief that benefits business owners is scrapped by the chancellor in the budget next week.
Business asset disposal relief, previously known as “entrepreneurs’ relief”, allows people to pay a tax rate of only 10 per cent on qualifying gains, up to a maximum of £1 million of gains in their lifetime.
The Treasury is thought to view the relief as poor value for money, placing it at risk as Reeves looks for ways to cut costs and repair the public finances.
However, the Federation of Small Businesses said the relief was “vital in encouraging entrepreneurship by reducing the burden of CGT”.
Scrapping it “would increase tax bills for those selling their business, leaving them with less financial security after years of contributing to the economy”, the group said.
It said its own research suggested more than four in five small business owners said they were planning to use the relief in the future.
Tina McKenzie, FSB policy chairwoman, said: “Getting rid of it would affect the everyday entrepreneur — the restaurant owner, the car mechanic and the jewellery designer — all of whom might be reluctant to take a new leap without the incentive that the relief provides.
“Many entrepreneurs invest their life savings into their ventures, making them vulnerable if they cannot secure a fair sale.”
The relief used to be significantly more generous but was curtailed in 2020 amid Treasury concerns about its cost and effectiveness. Following the reforms, the relief still costs the exchequer in the region of £1.5 billion annually.
The Institute for Fiscal Studies has said the relief is “poorly targeted” and leads to money being held in companies without achieving the “commonly stated policy goal of increasing owner-managers’ investment in their own businesses”. It says the relief should be scrapped in favour of more generous incentives for investment.
In 2018 the Resolution Foundation, a left-leaning think tank, called entrepreneurs’ relief Britain’s “worst” tax incentive and said it was “expensive, ineffective and regressive”, with benefits concentrated on a “few very wealthy individuals”.
Sir Edward Troup, a former permanent secretary at HM Revenue & Customs and an adviser to the government on reforming the tax authority, has said the policy has “minimal impact on encouraging entrepreneurship”.
However, entrepreneurs and investors have reacted with anger to speculation that the relief will be scrapped and note that its rumoured demise could be coupled with a rise in capital gains tax rates on the sale of shares and other assets.
Harry Stebbings, a prominent investor, has warned that technology entrepreneurs will leave the UK “en masse” if there are significant reforms to capital gains tax at the budget.
Barney Hussey-Yeo, the founder of Cleo, a fintech app, said this risked driving founders overseas. “It makes the UK less competitive when it desperately needs to be competitive,” he posted on social media. He has said he would quit the UK for the United States if entrepreneurs are hit with tax rises in the budget.
Barnaby Cook, co-chief executive of Auspicious, a creative services group, said that he had benefited from the relief when he sold shares in a business in 2021.
“I feel for business owners out there who have worked for years on the understanding they’ll be able to pay a favourable rate of tax on the proceeds of an eventual sale,” he wrote. “Combined with the likely increase in capital gains tax, this will have a huge impact on many.I hope it’s replaced with something else that encourages people to take the big risks involved in entrepreneurship.”