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Entrepreneurs’ Relief use growing over twice as fast in the North as in London

Entrepreneurs’ Relief use is growing over twice as fast in the North of England [1] as in London, highlighting its importance in stimulating small business growth in the North, says Boodle Hatfield, the leading private wealth law firm.

The value of capital gains against which Entrepreneurs’ Relief was claimed rose 22% in the North last year, increasing to £5.3bn in 2017/18, up from £4.3bn in 2016/17*. This compares to a 7% increase in London over the same period, rising to £3.9bn from £3.6bn.

Boodle Hatfield explains Entrepreneurs’ Relief halves the rate of Capital Gains Tax payable from 20% to 10% when a business is sold by the entrepreneur on eligible shareholdings up to a maximum of £1m of tax relief.

Boodle Hatfield says Entrepreneurs’ Relief is a tax incentive for small business owners to invest in their businesses as it helps to maximise their gains when they come to sell them.

At start-up founders of businesses generally receive no assistance from a tax perspective and so Entrepreneurs' Relief is one of the limited tax breaks available in a business' lifecycle.  Third party investors generally receive far more generous tax reliefs than founders.

It is rumoured that restrictions on Entrepreneurs’ Relief will be introduced in the March 2020 Budget.

Entrepreneurs’ Relief has encouraged entrepreneurial activity across the UK to ensure business growth is not concentrated in London and the South East. London represented just 18% of the total value of capital gains against which Entrepreneurs’ Relief was claimed in the UK last year (see table).

Scrapping Entrepreneurs’ Relief may affect entrepreneurial activity in the North and damage the Government’s prospects of ‘levelling up’ the region.

Hayden Bailey, Partner at Boodle Hatfield, says: “Entrepreneurs’ Relief has played an important role in encouraging new businesses and the figures indicate significant entrepreneurial activity in the North.”

“Entrepreneurs’ Relief does not just benefit billionaires as some commentators have recently suggested. The relief is a vital incentive for small business owners to continue to grow their businesses with a view to an exit.”

“Given that the Government has promised to level up the North, they should take into account the potential long-term effects before they think about restricting Entrepreneur’s Relief given the lack of tax incentives for start-ups.”

Yorkshire and the Humber has fastest growth in Entrepreneurs’ Relief use in the UK – up 37% in just a year

Boodle Hatfield adds that Yorkshire and the Humber saw the fastest growth in Entrepreneurs’ Relief use in the UK last year, rising 37% to £2.3bn in 2017/18, up from £1.6bn in 2016/17.

Other Northern areas also saw a sharp rise in Entrepreneurs’ Relief use over the same period. The North East had the second fastest growth at 23%, while the North West grew 10% (see table below).

Five of the Top Ten fastest-growing towns for use of Entrepreneurs’ Relief in the last year were in Yorkshire. Wakefield ranked second overall, with Entrepreneurs’ Relief use in the town doubling from £87m to £175m in a year. Halifax, Huddersfield, Bradford and York also made the Top Ten.

Value of Entrepreneurs’ Relief use in the North rises 37% in just a year

[1] Areas of the North of England include: North East, North West, Yorkshire and the Humber

* Year end April 5 2018. Source: HMRC

This article first appeared in The Times, Yorkshire Post and City AM. Find out more about our Entrepreneurs services and key contacts.

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