Ending Entrepreneurs’ Relief could provide £2.7bn for NHS

A think tank has claimed that scrapping the ‘expensive and regressive’ Entrepreneurs’ Relief would provide the government with a £2.7 billion head start in funding its NHS pledge.

Introduced by the Labour government in April 2008, Entrepreneurs’ Relief enables those selling companies to pay a 10 per cent rate of capital gains tax on up to £1 million of gains, half the current top rate, in a hid to encourage entrepreneurship and bring wider benefits to society. The tax break was significantly extended by the coalition to raise the maximum capital gains that could be tax relieved to £10 million.

However, analysis of Entrepreneurs’ Relief by the Resolution Foundation has found that it is ‘expensive, ineffective, and regressive’, and could be the worst of Britain’s main tax reliefs, which collectively cost around £155 billion each year.

The research reveals that actual spending on the relief had ballooned ten times the expected cost of £200 million-a-year to over £2 billion by 2011-12, mainly due to increased generosity and greater than expected use. HMRC estimates that last year it cost £2.7 billion.

Furthermore, in 2015-16, 52,000 people claimed the relief, benefitting by an average of £75,000. With 6,000 people having made claims on gains of over £1 million, 12 per cent of beneficiaries accounted for 69 per cent of the gains, benefitting by an average of £450,000 of tax relief each. Individual breakdown shows that 82 per cent of the beneficiaries are male with a typical age of 57. The Resolution Foundation also claims that Entrepreneurs’ Relief has lacked ‘serious evaluation of its effectiveness’, with no evidence that it has led to any ‘substantial increase in genuine entrepreneurship’.

Therefore, the Resolution Foundation is calling for the tax relief to be scrapped as part of Treasury plans to raise taxes to meet some of the costs of the £20 billion spending increase planned for the NHS.

Adam Corlett, senior economic analyst at the Resolution Foundation, said: “The UK’s £2.7 billion Entrepreneurs’ Relief is hugely expensive and overwhelmingly benefits a small number of wealthy individuals. There has also been no serious evaluation of the relief, despite it costing £22 billion over the past decade. As the Treasury wrestles with how to raise revenues to fund the Prime Minister’s pledge of £20 billion for the NHS, they should start by scrapping this expensive, regressive and ineffective tax relief.”