One in eight claims for Entrepreneurs’ Relief were for gains of more than £1m

More than one in eight (13%) claims for Entrepreneurs’ Relief were for gains of more than £1m in 2019/20 with the average claimed at just over £627,000, new analysis from Handelsbanken Wealth Management shows.

Entrepreneurs’ Relief which allowed an effective Capital Gains Tax rate of 10% on gains from business disposals over a lifetime of up to £10m, was replaced in the March 2020 Budget by Business Asset Disposal Relief which limits gains to £1m.

Handelsbanken Wealth Management’s Freedom of Information (FOI) request to HMRC found business owners in the South East accounted for more than a fifth (21%) of chargeable gains qualifying for Entrepreneurs’ Relief worth £5.95bn, according to the most recent data.

Greater London accounted for £4.82bn of claims – 17% of the UK total – with the East of England generating £3.07bn or 11% with three regions responsible for nearly half of the £28.67bn of chargeable gains qualifying for Entrepreneurs’ Relief in the UK.

HMRC data shows 46,000 business owners successfully applied in the 2019/20 tax year with the average claim around £627,000 and 13% of claims for more than £1m. Numbers of business owners applying were roughly the same as in 2018/19, but the total chargeable gains were lower at £28.04bn.

HMRC data for the 2020/21 tax year – the first to include the new Business Asset Disposal Relief – will not be available until after the January 31st 2022 self-assessment deadline.

The table below shows the breakdown across the country for numbers of taxpayers claiming Entrepreneurs’ Relief and the total chargeable gains qualifying for relief.

REGION NUMBER OF TAXPAYERS CLAIMING ENTREPRENEURS’ RELIEF 2019/2020 TOTAL CHARGEABLE GAINS QUALIFYING FOR ENTREPRENEURS’ RELIEF (£bn)
South East 9,000 £5.95
Greater London 7,000 £4.82
East of England 5,000 £3.07
South West 5,000 £2.57
North West 4,000 £2.74
West Midlands 3,000 £2.26
Yorkshire & The Humber 3,000 £1,93
East Midlands 3,000 £1.74
Scotland 3.000 £1.68
Wales 1,000 £0.74
North East 1,000 £0.65
Northern Ireland 1,000 £0.47
Other (including Guernsey, Isle of Man and Jersey) Less than 1,000 £0.06
TOTAL 46,000 £28.67

Mark Collins, Head of Tax at Handelsbanken Wealth Management said: “The numbers of business owners benefiting from Entrepreneurs’ Relief has remained relatively stable for the past few years at around 46,000 while the value of chargeable gains has increased marginally over the same period.

“The introduction of Business Asset Disposal Relief is likely to limit the numbers eligible, but it remains a valuable part of tax planning for business owners when considering disposals.”

Mark adds: “What will become much more important in the coming years is Investors’ Relief, where the lifetime limit remains at £10m. This relief reduces the amount of Capital Gains Tax on a disposal of shares in an unlisted trading company and business owners and business angels should take professional advice to ensure they meet the qualification conditions for this relief.”

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