Following the outcry when the plans were announced, Darling has relented, and introduced a limited entrepreneurs’ relief. Targeting the owners of small businesses, it will apply when they sell their business. The relief will also be available to all employees and company directors who invest a material stake in a qualifying company.
The relief take the shape of a 10% tax cut for up to the first £1m of lifetime capital gains. Individuals will be able to claim relief for gains made on multiple occasions up to a cumulative total of £1m. Gains in excess of the £1 million lifetime limit will fall into the 18% tax rate band.
Serial entrepreneurs and investors will not be much better off as a result of the modification. They will only be eligible for the 10% rate on their first £1m, not on each divestment. Investors also have to own a minimum of 5% to qualify for the relief, which poses problems for employee share ownership incentive schemes which is an important tool of incentivisation for managers running start-up companies.
No-one is particularly pleased. The
Aisling Burnand, chief executive of the BioIndustry Association, said: “The Chancellor’s commitment to entrepreneurs is admirable. However, his proposal does not recognise how business angels and serial entrepreneurs work in the bioscience sector. They are penalised by the need to be directors or employees, the minimum 5% stake threshold and by the £1m lifetime limit.”