Ricky Murray: 'In the Chancellor’s vision of the future, entrepreneurs clearly play a key role'

A United Kingdom with a lively and successful entrepreneurial sector can of course have a positive knock-on effect for the Treasury, so it is no wonder in this week’s Budget that the Chancellor chose to “light a fire under UK Enterprise”.

Scotland is ready to take advantage of this economic environment, with a number of Angel investor syndicates across the country now attracting worldwide attention for their investment approach.

In this country, there is entrepreneurial flair in abundance. While starting a business has its own set of risks, the Chancellor has ensured that where gambles are taken, there are clear rewards available.

Last year, the Committee of Scottish Bankers recorded 11,669 start-ups. This was down 0.9 per cent on the 11,772 recorded in the previous year.

This is where Entrepreneurs’ Relief (ER) comes in – a generous incentive that is all set to re-ignite that flair.

There was some worry that ER would be trimmed back so business owners will be celebrating – as, now, will outside investors. Being able to access a 10% rate of capital gains tax on newly issued shares in unlisted companies purchased on or after 17 March 2016, provided they are held for a minimum of three years from 6 April 2016. These will be subject to a separate lifetime limit of £10 million of gains. And, of course outside long-term investors in unlisted companies make an important contribution by putting capital in to these businesses.

In this environment, it is more likely that more angel networks will pop up, with new investors seeing the opportunity and joining the party.

For private investors, injecting funds into an Enterprise Investment Scheme can be an attractive prospect. People can invest up to £1 million in any tax year and receive 30% tax relief. However, the funds are then locked into the scheme for a minimum period of three years.

Given the potential rewards, this can encourage wealthy investors to take a punt on a start-up, while it can also help with the growth of more established companies which may be perceived to be a less risky investment.

The announcement of a reduction in Capital Gains Tax rates was something of a surprise, although a welcome one, especially considering how recently they were raised. The 18 per cent rate, which applied to gains arising within an individual’s income tax basic rate band will be reduced to 10 per cent while gains arising in excess of an individual’s income tax basic rate band will be reduced from 28 per cent to 20 per cent.

There is a clear incentive from a business owner’s point of view to build a company with a view to exiting at some point in the future and realising a greater share of the value thanks to the lower rate of tax.

What makes this a bit of an attention-grabber is the fact that HMRC recently beefed up other anti-avoidance rules. Trying to convert income into capital gains and take advantage of lower rates is a well-worn tactic, but the Government is smart to it. The message now from the tax authorities is clear: if they think you’re gaming the system, they have the armoury to tax the gain as though it was income or dividend.

Small business numbers are soaring and, with this budget they will continue to fly. What’s even more encouraging is that there are now more opportunities for the existing small businesses, as well as investors, to prosper and take advantage of the post-Budget landscape.

Ricky Murray is a tax partner at Johnston Carmichael