More than 1,500 UK business and business leaders have signed a letter to Chancellor Rachel Reeves, urging her to reconsider proposed changes to corporate asset disposal relief (formerly known as Entrepreneur Relief), ahead of the Budget on October 30. the first.
The letter warns that modifying or removing the relief could severely undermine the entrepreneurial spirit that has driven economic growth and innovation in the UK.
Currently, business asset disposal relief allows entrepreneurs to pay a reduced tax rate of 10% on qualifying gains, up to a maximum of £1 million. However, this relief is believed to be at risk as the government seeks ways to cut costs and repair public finances. Signatories of the petition say removing or limiting the exemption would send the wrong message to entrepreneurs and investors, making the UK a less attractive place to build a business.
Notable signatories
The petition, organized by venture capital firm Fearless Adventures, co-founded by Dominic McGregor, includes signatures from prominent entrepreneurs such as Peter Roberts, founder of Puregym; Will Butler Adams (pictured)Managing Director of Brompton; and Jennifer Roebuck, co-founder of The Tortilla Company. They argue that dilution provides a crucial incentive for entrepreneurs to take risks when starting a business and is vital to promoting economic growth.
The letter acknowledges the importance of tax revenues to fund public services, but asserts that taxing entrepreneurial gains at the same rate as ordinary income would deter business creation. As well as calling for the relief to be retained, the signatories are asking Reeves to restore the lifetime cap to £10m, which was reduced to £1m in 2020 by then-Chancellor Rishi Sunak.
Conflicting opinions on relief
While signatories stress the importance of mitigation in encouraging business risk-taking and innovation, critics claim that mitigation is not well targeted. Both the Decision Foundation, a left-leaning think tank, and the Institute for Fiscal Studies have called for the exemption to be scrapped, citing concerns about its cost and effectiveness. Some experts have described this relief as “Britain’s worst tax break”, arguing that it disproportionately benefits wealthier individuals without sufficiently stimulating economic growth.
However, entrepreneurs contend that removing or limiting dilution would hurt not only high-profile founders, but everyday business owners like restaurant operators, mechanics and designers, who rely on it as an incentive to make the financial jump needed to start a business.
Concerns of the Small Business Union
The Federation of Small Businesses has echoed these concerns, warning that increasing taxes on entrepreneurs when they sell their businesses would stifle business creation and innovation. Tina McKenzie, head of policy at the Financial Stability Board, noted that many entrepreneurs invest their savings in their ventures, leaving them vulnerable if they cannot secure a fair sale. McKenzie stressed that removing dilution could discourage people from starting new businesses and taking the risks needed for economic growth.