The Institute for Fiscal Studies (IFS) has called for Entrepreneurs’ Relief (ER) to be scrapped.
In a new report, the IFS stated that owner-managers ‘respond to changes in income taxes by adjusting how and when they take money out of their company’, not by changing the amount of income they create or how much investment they make.
According to the IFS, lower rates of tax on business income produce ‘large benefits that disproportionately accrue to the rich’.
The business group also suggested that ER costs the government £2.4 billion per year relative to taxing gains at the full capital gains tax (CGT) rate.
Commenting on the matter, Phil Hall, Head of Public Affairs and Public Policy at the Association of Taxation Technicians, said that ER is ‘extremely expensive, misguided and ultimately ineffective’. He continued: ‘If the government is serious about wanting to encourage entrepreneurialism, committing this £3 billion of relief to help small British businesses to grow and prosper would be a far better investment for UK PLCs than encouraging business owners to sell up.’
The report can be read in full here.