UK Budget 2020 - Entrepreneurial Taxes


Andrew Holloway

Andrew Holloway

Director, Entrepreneurial Taxes


Having woken up with a great concern around the future of popular tax reliefs beginning with the letter E – Entrepreneurs’ Relief (ER), Enterprise Management Incentives (EMI) and the Enterprise Investment Scheme (EIS), the Budget delivered change to ER with the reduction in the lifetime limit from £10m to £1m (as well as some targeted anti-avoidance), but looks to have left EMI and EIS broadly untouched. 

EMI

On EMI, buried in the detail of the Budget announcement, a government review is announced to ensure that the scheme provides support for high-growth companies to recruit and retain the best talent so they can scale up effectively, and to examine whether more companies should be able to access the scheme.  

Given that EMI is a State Aid, the direction that this takes will all depend on the upcoming withdrawal agreement negotiations, but on the basis that HMRC recently confirmed that the State Aid approved status will apply until at least the end of the transition period, EMI remains very much open for business. One of the key attractions of shares acquired through an EMI option is that any growth in value, assuming that the options/shares are held for at least two years and the individual is an employee/director at the time the shares are sold, is taxed at the 10% ER Capital Gains Tax rate.  

While the reduction of the limit for ER qualifying gains will have an impact on some very successful entrepreneurs, we would expect that the significant majority of gains made on the disposal of EMI shares will continue to benefit wholly from ER, as in the vast majority of cases these shares represent a minority interest but importantly will still deliver a potentially life-changing return to option holders. 

Other Share Incentive Schemes 

The Government didn’t announce any changes to any of the other approved employee shares schemes including Company Share Option Plans, Share Incentive Plans and Save As You Earn. However, no change was anticipated to these schemes, firstly because they don’t start with the letter E(!), but also because they are not entitled to the relaxation of the ER rules that the EMI scheme allows. 

Seed EIS, EIS & VCT 

On SEIS, EIS & VCT, it looks like no changes. Whilst it would have been positive to see both simplification (perhaps seeking to cure some of the inherent complexities), as well as improvement (an extension of relief rates), certainty is good for both entrepreneurial companies and investors alike. The whole tone of the Budget is around investment, with promises made on R&D, science, technology and a host of other energy and infrastructure projects, and UK entities continue to have the opportunity to be at the forefront of these developments. In fact, with the reduction in ER lifetime limits, we would foresee further increased interest from certain individuals in reviewing their qualifying status in respect of SEIS, EIS and VCT as well as Investor Relief, where the £10m lifetime limit seems to have been preserved. 

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