Think tank the Resolution Foundation has dubbed Entrepreneurs’ Relief (ER) the UK’s ‘worst tax break’, and has urged the government to abolish the initiative altogether.
ER is a tax relief available on the disposal of a business, and gives those eligible access to a lower rate of capital gains tax (CGT): under ER, this is charged at 10%, as opposed to 20%.
According to the Resolution Foundation, ER is ‘ineffective’, and should therefore be abolished in order to fund improvements to NHS services.
When it was first introduced in 2008, ER was expected to cost £200 million per year. The Resolution Foundation stated that spending on the relief ‘ballooned’ to over £2 billion by 2011/12, due in part to ‘increased generosity’ and ‘greater-than-expected use’. HMRC recently predicted that ER spending increased to £2.7 billion last year.
The Foundation suggested that this figure is ‘more than the entire budget’ for the UK’s intelligence services, and is enough to ‘provide £100 to each and every household in the country annually’.
Adam Corlett, Senior Economic Analyst at the Resolution Foundation, said: ‘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.’