The reality is that for those who have invested heavily in their businesses and for whom the timing has not been right to exit, this could be a significant blow.
Furthermore, paring the lifetime limit back not only discourages potential entrepreneurs from founding a business, but could also deter potential investors
The changes to the relief may financially impact some business owners’ exits and retirements, as the increased availability of entrepreneurs’ relief was the driver of those decisions.
The timing of such exit will also likely be kicked further down the road as the macro-economic effect of the coronavirus outbreak and the business impact of the eventual Brexit transition transpires.
How can business owners extract value?
As their businesses can represent a pension ‘nest egg’, owner-managers may now look to other means to extract capital and profits tax-effectively prior to selling.
As a result, we expect to see accountants and business advisers working closely with each other to help owner-managers extract optimal value from their businesses.
For example, this could be in the form of a combination of increased pension contributions, a salary uplift, increased dividend payments and even benefits in kind.
It goes without saying that tax planning will remain integral to the exit process.
Eddie Bines is director, restructuring advisory at Duff & Phelps