UK Budget doubles lifetime limit for entrepreneurs’ relief

The Watcher is not a tax lawyer, so (he suspects much like others) he relies on helpful summaries to navigate the impact of yesterday’s budget. Some of his partners spent yesterday live blogging and tweeting about the budget (@olswang, #budget 11). Whilst this blog tends to focus on some of the larger technology and telecoms companies, a significant amount of innovation and wealth creation occurs within a tier of somewhat smaller companies. Those companies, and their owners and managers, often accept higher levels of risk than managers within larger organisations and it is important that the tax system permits and encourages appropriate levels of reward.

As blogged on by Michael Deeks,  and summarised by Natasha Kaye:

‘One aspect of yesterday’s budget was the increase lifetime limit of gains that can qualify for entrepreneurs’ relief. From 6 April 2011, the lifetime limit will increase from £5 million to £10 million. Since, where entrepreneurs’ relief is applicable, gains are taxed at 10%, as opposed to rates of up to 28%, entrepreneurs’ relief will now be worth up to £1.8 million to individuals that make qualifying gains.

For individuals who have made qualifying gains before 6 April 2011 above the relevant lifetime limits at the time (£1 million from 6 April 2008, £2 million from 6 April 2010 and £5 million from 23 June 2010), no additional relief will be available in relation to such historic gains. However, the balance of the increased lifetime limit will be available to such individuals in respect of future gains.

It is disappointing that the arbitrary requirement to hold 5% of the ordinary share capital in a qualifying company was not relaxed or EMI optionholders were not included, which would have allowed a wider class of employees and directors to be incentivised.’

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