Rishi Sunak has just delivered his first Budget as Chancellor of the Exchequer, announcing the Government’s plans to reshape the UK economy.
Despite the rumours circulating in the media in the run up to the Budget, we are encouraged to see that the Government has not decided to remove Business Property Relief (BPR). BPR is a hugely important relief that has provided patient capital for countless numbers of smaller companies, including those quoted on AIM. It has proved to be vitally important for supporting the UK economy, and in particular, small and mid-size quoted companies. BPR is a simple to administer and longstanding relief that has acted as a driver for liquidity on AIM.
Elsewhere, the Chancellor confirmed that Entrepreneurs’ Relief (ER) will also not be abolished and that instead it will be reformed. As part of the reforms, the lifetime limit on gains eligible for ER – which offers a reduced 10 per cent rate of Capital Gains Tax – will be reduced from £10 million to £1 million, with the Chancellor citing that the relief had done little to encourage entrepreneurial activity and a lot to benefit a small number of individuals.
We stressed our desire for the relief to be maintained when we submitted our 2020 Budget Representation to the Treasury earlier in the year and are, as such, discouraged to see the relief being reformed so considerably. However, our 2020 Budget Representation stressed the importance of this relief also to employees (via the Enterprise Management Incentives (EMI) scheme) and perhaps the Government noted our comments when deciding not to abolish the relief altogether.
Having said that, the Government must ensure that, in place of a reduced ER, individuals continue to be rewarded for enterprise and that equity investment in smaller, growing companies is still encouraged so that companies can attract the necessary talent and investment to grow and create more productive employment, which is essential for the growth of the UK economy.
We are pleased to see that the Government has made a commitment to undertake a review of the Enterprise Management Incentives (EMI) scheme that provides support for growth companies. In undertaking the review, the Government has stressed that they will examine whether more companies should be able to access the scheme. This reflects the proposal we made in our 2020 Budget Representation noting that many companies were excluded from EMI schemes due to the company size limits and similarly in a recent survey we undertook on employee share schemes where small and mid-size quoted companies expressed their desire for expanding the scope of EMI. Updating the limits and expanding the scope will markedly increase a growth or early-stage company’s ability to attract and retain talent.
Finally, we welcome the announcement that the British Business Bank will be supplied with additional resources. This includes additional resources to make up to £200 million in equity commitments to support innovative health and life-sciences companies and £200 million for investment in UK venture capital and growth finance.
On behalf of the QCA’s Tax Expert Group and Share Schemes Expert Group.