Entrepreneur's relief expected to disappear after UK general election
The Conservative manifesto promises to 'review and reform entrepreneur's relief', which the party says is one of the tax measures that has not 'not fully delivered on [its] objectives'. Entrepreneur’s relief (ER) has already come under fire from HM Treasury for supposedly being too generous to investors, and several commentators interpret this 'reform' as probably meaning complete abolition.
'The political reality is that trimming or abolishing entrepreneur's relief is a relatively easy and low-risk option for a Chancellor in need of funds for high-profile new spending commitments', commented James Austen TEP of Collyer Bristow. 'Affected business owners - especially those looking to dispose of their businesses in the near future - should seek tax advice as soon as possible.'
The Labour party has already undertaken to abolish ER, but it also intends to abolish capital gains tax (CGT) as a whole. Gains would be taxed at the taxpayer's marginal income tax rate, subject to a GBP1,000 de minimis threshold, with a rate-of-return allowance set at contemporary ten-year bond rates to allow gains below this rate to be earned tax-free. Instead of ER, Labour would 'consult on a better form of support for entrepreneurs which is not largely just a handout for a small number of people', says its tax policy proposal. The Liberal Democrats do not explicitly mention ER, but they would abolish the CGT annual exemption, currently worth GBP12,000.
Labour also proposes to remove the preferential 7.5 per cent tax rate on dividend income, taxing it as any other income, and removing the dividend allowance: an additional tax cost of more than GBP4,800 for investors with substantial dividends.
As well as taxing annual income over GBP80,000 at the 45 per cent additional rate, and income over GBP125,000 at 50 per cent, Labour also proposes to remove the main residence nil-rate band for inheritance tax, and introduce a penal annual levy on second homes that are used as holiday homes, equivalent to double the current council tax bill for the property.
The Conservative party also proposes a 3 per cent stamp duty surcharge on non-resident purchasers of UK property (a 1 per cent surcharge has already been tabled by the present government). This would give a top effective rate of stamp duty land tax of 18 per cent for non-resident buyers. Labour has meanwhile proposed that non-resident companies and trusts will pay a 20 per cent surcharge on purchases of UK residential property.
Commentators have expressed most surprise at Labour's promise to abandon the current government's plan to extend the IR35 off-payroll tax rules to the private sector in April 2020, while the Liberal Democrats have undertaken to only 'review' the proposals.
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