Entrepreneurs’ Relief Explained
Capital Gains Tax (CGT) is due when you sell, give away, exchange or otherwise dispose of business assets, but you may be able to reduce your CGT bill if you are eligible for certain tax reliefs. One of these is Entrepreneurs’ Relief.
Disposals eligible for relief
Entrepreneurs’ Relief applies for the years 2008-09 onwards. It allows individuals and some trustees to claim relief on capital gains arising on ‘material disposals of business assets’.
These include the sale, gift or transfer of:
• all or part of a business
• the assets of a business after it has stopped trading
• shares or securities in a company
Who qualifies for Entrepreneurs’ Relief?
The relief is not available for companies against the disposal of investment assets held by the business, but it may be available for individual taxpayers who:
• own a business as a sole trader
• hold shares in a personal trading company
• are a partner in a trading business
• are a trustee
Depending on the type of disposal, you will need to meet certain conditions throughout a qualifying year. For example, if you’re selling all or part of your business you must have owned the business during the year that ends on the date your business was disposed of or on the date the business ceased.
How the relief works
There’s a maximum ‘lifetime’ limit on the amount of Entrepreneurs’ Relief you can claim. This increases in steps from the first £1 million (6th April 2008 – 5th April 2010) to the first £10 million from 6th April 2011.
CGT is due at 10% on all qualifying gains up to this maximum limit. You can make claims for Entrepreneurs’ Relief on more than one occasion, but the total qualifying gains must not exceed the lifetime limit.
As you can see, Entrepreneurs’ Relief is a complex subject and we have only been able to give a brief overview here. We therefore recommend that you seek professional financial advice to help you decide if you are entitled to it and how to make a claim.