How has entrepreneurs’ relief been eroded and what opportunities remain?

In recent years, the increasing disparity between the top rate of income tax on dividends (38.1% from 6 April 2016) and the 10% rate on capital gains qualifying for entrepreneurs’ relief means that shareholders have sought opportunities to extract cash from companies as capital rather than income. Recent legislative changes, within the transactions in securities provisions and the targeted anti-avoidance rules in particular, have curbed a number of opportunities such as capital reductions, liquidations and partial exits. Despite this and an extension to investors’ relief, introduced in Finance Bill 2016, entrepreneurs’ relief remains an attainable and valuable relief, as long as shareholders get the basics right. Business owners can also breathe a (cautious) sigh of relief, as the government recently announced that it does not intend, for now, to introduce potentially punitive measures to deal with ‘money-boxing’.