PERSPECTIVE3-5 min to read

Business owners warned of capital gains tax increase in March 2020 Budget

Capital gains tax for successful entrepreneurs could double if reports of the Government's planned changes to entrepreneurs' relief prove correct.


This article preceded the Budget. An analysis of the Budget outcomes, published on 11 March after the Chancellor's speech, can be read here

Entrepreneurs selling businesses could see their capital gains tax liabilities rise by as much as 100% if, as heavily hinted, the Government uses its 11 March Budget to cut entrepreneurs’ relief.

The tax break currently grants a 50% reduction in capital gains tax payable when businesses are sold (see below).

Both Labour and Conservative politicians have criticised the tax break for several years, but action to reduce the benefit now seems more likely than ever. The Conservative Party’s 2019 election manifesto promised the measure would be subject to “review and reform”. In the short period since the election, however, senior Conservatives have indicated more clearly that the tax relief is to be scaled back – or even abolished.

Entrepreneurs’ relief: current benefits for business owners and entrepreneurs

  • The tax break limits the capital gains tax liability when business owners sell or give away part or all of their business.
  • Instead of the standard tax rate of 20% applying to taxable gains, disposals which qualify for entrepreneurs’ relief attract a lower tax rate of 10%.
  • When the relief was announced by Labour Chancellor Alistair Darling in 2008 it could be applied to “a cumulative lifetime total of £1 million of gains”. In 2011 this lifetime limit was increased to the current £10 million ceiling.
  • A number of requirements must be met to qualify, primarily that the business owner’s shareholding must be at least 5% of the share capital and the holding must have been owned for a minimum two years.

Tax planning opportunities for business owners

The fact that relief can be applied on multiple gains (up to the limit) allows for wider tax planning and is useful for serial entrepreneurs. The relief is available per individual, giving rise to potential tax-planning opportunities where business owners are married or where they want to pass businesses on to children or other beneficiaries.

The value of the tax break, however, is what has made it controversial – and fuelled increased speculation that it is now within Chancellor Sajid Javid’s sights.

Criticism of entrepreneurs’ relief – and what the current Government has said and done so far

  • April 2019: the Conservatives tightened existing entrepreneurs’ relief rules. In order to qualify, business owners making disposals after 6 April 2019 would need to have owned their shareholding for at least 24 months, rather than the previous 12-month qualifying period.
  • August 2019: the think tank Resolution Foundation called for the entire abolition of entrepreneurs’ relief, claiming it cost the Exchequer £2.7 billion per year and was “expensive, ineffective and regressive”.
  • October 2019: the influential Institute for Fiscal Studies added calls for reform.
  • January 2020: on 17 January, speaking at a business founders’ event in west London, Boris Johnson reportedly said: “there are some people who are staggeringly rich who are using that relief to make themselves even more staggeringly rich…”
  • 27 January 2020: a “senior minister” told the Financial Times that Mr Javid was “drawing up plans to curb the tax break”. Pro-enterprise groups, including the British Chambers of Commerce and the Federation of Small Businesses, responded by urging Mr Javid not to eradicate the relief.
  • 13 February 2020: Mr Javid resigns and is replaced by Rishi Sunak. Subsequent media reports suggest that potential changes considered by Mr Javid remain on the agenda.

What we think is going to happen

The Government’s direction of travel seems clear: this benefit, already under attack, is to be reduced. Will it be abolished entirely? We don’t think so.

Instead, we think it likely that the £10 million lifetime limit will be reduced, perhaps back to the original limit of £1 million. This would have the effect of saving money for the Exchequer while retaining the benefit in principle. It is possible that further tightening of the qualifying rules will also be undertaken.

The overall result is likely to be that some of the current opportunities associated with entrepreneurs’ relief will be lost.


With reduction of available relief at the point of disposal, the need for longer-term planning before and after the sale of business assets is likely to become even greater.

Almost 40% of our clients have achieved their wealth through founding and building a business. We have significant experience in helping a wide range of business owners arrange their personal and business affairs around disposals.

Statements concerning taxation are based on our understanding of the taxation law in force at the time of publication. The levels and bases of, and reliefs from, taxation may change. You should obtain professional advice on taxation where appropriate before proceeding with any investment.

This article is issued by Cazenove Capital which is part of the Schroders Group and a trading name of Schroder & Co. Limited, 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. 

Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested.

This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements.

All data contained within this document is sourced from Cazenove Capital unless otherwise stated.


Business owners

The value of your investments and the income received from them can fall as well as rise. You may not get back the amount you invested.