Friday 31 August 2018 9:06 am | Updated: Friday 24 May 2019 7:44 pm

DEBATE: Is Entrepreneurs’ Relief worth the cost to the government?

Is Entrepreneurs’ Relief worth the cost to the government?

Chris Chapple, tax partner at BDO, says YES.

Entrepreneurs’ Relief (ER) is a generous tax relief for business owners – but let’s remember why it was created.

Tax law has long offered reliefs to entrepreneurs who sell all or part of their business, of which ER is only the most recent. And the principle remains sound.

The ER limits were increased twice during a period of economic recession (first by Labour and then by the coalition government). This is no coincidence. There was widespread recognition that incentives for entrepreneurs were crucial to generating long-term economic growth.

The current limit, which allows you to claim relief on gains of up to £10m, has both proved aspirational and, for serial entrepreneurs, allows significant reinvestment into their next business.

Now that talent and intellectual property is more internationally mobile than ever, ER and other reliefs like it are also essential to sustaining an environment that encourages investment into the UK and ensures international competitiveness.

Remember, ER only applies to certain trading business, so it is aimed at precisely the value and employment creating companies that this country needs to nurture.

Adam Corlett, economic analyst at the Resolution Foundation, says NO.

Over its first decade, Entrepreneurs’ Relief has cost the government a massive £22bn. Like any scheme, we should ask whether it’s delivering value for money.

Last year’s cost of £2.7bn was more than the entire intelligence budget, more than rail spending in the north of England, and enough to have given every household £100.

What little evidence there is on the relief’s impact shows that its cost has been almost entirely dead weight – benefiting people without influencing their behaviour at all. It would make more sense to help small enterprises when they’re starting out or struggling, rather than boosting the rewards for a tiny number of successful people at the ends of their careers. Even without the relief, the top rate of capital gains tax is only 20 per cent.

With the government needing to fund its big NHS promise, the question is which – not whether – taxes should rise. One of the easiest decisions should be to scrap or refocus Entrepreneurs’ Relief.