The current annual £10m lifetime allowance will be reduced to £1m. This will apply to qualifying disposals made on or after 11 March 2020 and to certain disposals made before 11 March 2020.

There are special provisions for disposals entered into before 11 March 2020 that have not been completed, and in relation to certain entrepreneurs’ relief elections following an exchange of shares for those in another company.

Sunak said: ‘We need more risk taking and creativity, so we are not going to fully abolish entrepreneurs’ relief but we will reduce the lifetime limit from £10m to £1m. 

'This will save £6bn over the next five years and this money will be invested straight back into innovative businesses and technology.’

Entrepreneurs relief is used by a small number of business owners a year with an estimated 4,000 beneficiaries a year, who tend to use the tax relief as a retirement pot, rather than stimulating new start-ups. It costs the Exchequer an estimated £2.7bn a year to operate without stimulating start-up business.

Entrepreneurs’ relief reduces the amount of capital gains tax CGT) paid on disposals of qualifying businesses, shares in a personal company and shares from an enterprise management incentive (EMI).

Under pre-Budget rules CGT is paid at 10% on claims up to a lifetime limit of £10m worth of qualifying gains.

The legislation contains rules that counter certain forestalling arrangements that seek to ‘lock-in’ to the pre-Budget day lifetime limit. Those arrangements make use of:

• unconditional contracts entered into before Budget day;
• the time of disposal rule at section 28(1) of TCGA 1992; and
• contractual completion of the disposal after Budget day.

There are no transitional rules for disposals that take place after 11 March 2020, including where:

• the business ceased to trade prior to 11 March 2020;
• the disposal is ‘associated’ with an earlier disposal; or
• the gain is a deferred gain that accrues on a chargeable event on or after 11 March 2020.

Sunak said 80% of small business owners would be unaffected by the change.

Caroline La Jeune, a partner at Blick Rothenberg said: ‘Successful entrepreneur’s fears were realised with the reduction of entrepreneur’s relief to a lifetime limit of only £1m. This runs counter to the Chancellor’s headline commitment to encouraging private businesses.

‘It will be interesting to see, when the detail behind the Budget is revealed, whether the reform of entrepreneur’s relief will be mirrored by a similar reform of investor’s relief, which also provided a 10% tax rate on the first £10m of qualifying investments.’

Sunak also announced £130m of new funding to extend start-up loans for new businesses.

Jamie Morrison, head of private client at accountancy firm HW Fisher said: ‘This change to entrepreneurs’ relief is as good as abolishing it completely and this is a huge mistake. While a sensible change following proper consultation would be welcomed, this is a step too far.

‘By cutting the relief entrepreneurs will only be able to benefit up to £100,000 during their lifetime. This is not enough to drive support of creativity and entrepreneurship.’

Technical guidance on entrepreneurs' relief changes