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April 25th 2018

Entrepreneur's Relief demystified

Entrepreneur’s Relief is a Capital Gains Tax (CGT) relief designed to reduce the amount of CGT paid by individuals who sell, or give away, all or part of their business.

Gains that qualify for Entrepreneur’s Relief are subject to CGT at a rate of only 10%, as opposed to rates of up to 20% (and in the case of residential property, 28%) for normal gains. So it’s a very valuable relief to individuals who sell their business.

How it works

Let’s have a look at how the relief works. Disposals that may qualify include:

  • The sale of all or part of a business (including the business assets) which you operate as a sole trader or partner;
  • Shares in a trading company where you own at least 5% of both the shares and the voting rights; and
  • Assets which are used in the business which you are selling.

If you are selling all or part of a business, you must have owned it for at least one year prior to sale.

If you are selling shares in a company, the following must have applied for at least one year prior to the sale:

  • You’re an employee or office holder of the company (or another in the same group); and
  • The company’s main activities are trading, rather than non-trading/ investment activities – or the company is the holding company of a trading group.

And again, you must have owned at least 5% of both the shares and the voting rights for at least one year prior to sale.

Associated disposals

If you are selling assets associated with the business you are selling, gains on the sale of those assets may also qualify for Entrepreneur’s Relief provided that they were used by your business or personal company for at least one year up to the date you sold the business/ shares, or the date the business closed.

Unfortunately, there is now an exception for gains on the disposal of land & buildings which have been rented to a personal company for a consideration – Entrepreneur’s Relief may be restricted in such circumstances.

How do I claim?

Claims to Entrepreneur’s Relief are normally made through the Self Assessment return and there is a lifetime limit on the amount of relief that one individual can claim, currently £10m.

For more details, contact our tax team today.

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