Entrepreneurs’ Relief should have had open consultation, say tax body

The Government should have held an open, public consultation on Entrepreneurs’ Relief before deciding the relief’s fate, says the Chartered Institute of Taxation (CIOT).

Today’s Budget announcement1 that the lifetime limit for Entrepreneurs’ Relief will be reduced from £10m to £1m with immediate effect was against a background of speculation about the fate of this relief, a relief that has been subject to widespread criticism on many fronts - for costing too much, not encouraging start-ups and being claimed by relatively few people.

John Cullinane, CIOT Tax Policy Director, said:

“The press has been full of comments over recent weeks from friends and enemies of Entrepreneurs’ Relief. It would have been better if the Government had conducted a full and open consultation on the relief’s fate, possibly alongside other tax breaks intended to support entrepreneurship, before coming to its conclusions.

“Working out whether this relief, and the many other reliefs and structural changes in the tax system, are operating as intended and achieving their purpose should be a routine and systematic part of the tax policy process - to test whether the government’s aims for the reliefs and changes are being achieved; and to inform future policy development.

“The fact is that rigorous post-legislative review and evaluation is rarely implemented (certainly not publicly and consultatively) and certainly is not routine. This is despite the government’s public commitment to such review and wide support for it to be adhered to.2

“One difficulty for taxpayers who have legitimately taken advantage of reliefs is uncertainty about when the rules for a particular relief might change. There will be people affected by this change who have reinvested money in the expectation of a relief they will not now get.3 Such ‘retroactive’ effects are inevitable in a capital gains tax system. But a transparent process of evaluation, conducted as an open consultation or public call for evidence, would at least allow taxpayers some indication of the direction of travel as a background to their decisions and reasonable expectations.”4


As announced at Budget 2020, the government will introduce legislation in Finance Bill 2020 reducing the lifetime limit on gains eligible for Entrepreneurs’ Relief from £10 million to £1 million for qualifying disposals made on or after 11 March 2020. Specific rules will apply where contracts were exchanged before 11 March but not completed until after that date.

The government’s ‘Tax Consultation Framework’ commits to five stages of policy development and implementation of tax policy. Stage 5 involves reviewing and evaluating the change recognising that monitoring and evaluating tax policy is critical to maintaining the efficacy and productiveness of the tax system.

The 2017 Better Budgets report – produced by CIOT in partnership with the Institute for Government and the Institute for Fiscal Studies – called on the government to institutionalise evaluation of tax measures – that is provide for systematic post-legislative review of whether measures are achieving their objectives at an acceptable cost, with Parliament holding government to account for this.

A serial entrepreneur who has previously sold a business, reinvested gains of £1m or more in a new venture, and made it successful, profitable and valuable will not now get the Entrepreneurs Relief they would have expected when the new business is sold.

The lifetime limit has previously been increased a number of times since Entrepreneurs’ Relief was introduced in 2008 when the original limit was set at £1 million. These have been ‘surprise’ Budget announcements and there is no ‘roadmap’ to provide a background idea of the government’s thinking or the likely direction of travel.

Dates of disposal and lifetime caps

6 April 2008–5 April 2010 - £1,000,000

6 April 2010–22 June 2010 - £2,000,000

23 June 2010–5 April 2011 - £5,000,000

6 April 2011 – 11 March 2020 - £10,000,000

From 11 March 2020 - £1,000,000



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