New tax relief for entrepreneurs

A new capital gains tax relief for entrepreneurs, reflecting the Government's continued commitment to supporting small business and enterprise was announced by the Chancellor of the Exchequer today.

Entrepreneurs' relief will be targeted on the owners of small businesses, and 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. It will take effect from 6 April 2008 alongside the rest of the capital gains tax reform package.

The relief will deliver a 10 per cent tax rate for up to the first £1 million of lifetime capital gains. Individuals will be able to claim relief for gains made on multiple occasions up to a cumulative total of £1 million. Gains in excess of the £1 million lifetime limit will attract the standard 18 per cent rate of tax.

This announcement follows major reform of the capital gains tax regime in the 2007 Pre-Budget Report which will deliver a more sustainable, simplified and internationally competitive system.

In addition to the entrepreneurs' relief announced today, the Government is also continuing to deliver targeted support through the Enterprise Investment Scheme and Venture Capital Trusts. These initiatives provide a range of income tax and capital gains tax reliefs to individual investors, helping to improve access to full-risk equity finance for small businesses.

Notes for editors

1. Capital gains tax (CGT) is paid by individuals and is charged at the point of disposal of certain assets if they have gone up in value. Individuals have a tax-free annual exempt amount of £9,200 for 2007/08, and gains made up to this limit attract no CGT. There are exemptions from CGT for the disposal of certain assets, for example an individual's main residence. Capital gains made by companies are dealt with separately under the corporation tax regime, and these arrangements have not changed.

2. The entrepreneurs' relief will apply to gains arising on disposals of trading businesses and to gains arising on certain disposals of shares in trading companies.

3. An investor will have a material stake in a company if they are an employee, company director or other officer of the company, they own at least 5% of the shares in the company, and they are able to exercise at least 5% of the voting rights in the company.

4. Further information about the new relief, along with draft legislation and other documents related to proposals announced at the Pre-Budget Report, are available from the HM Revenue & Customs website.

5. The Exchequer cost of the entrepreneurs' relief is estimated at around £200 million a year. The measure will be formally recorded in the 2008 Budget Report.

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