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Entrepreneur’s Relief - Capital Gains Tax (CGT)

  
  
  
  
  
  

Before the rate of Capital Gains Tax (CGT) was raised from 5% or 10% to 18% or 28%, small businesses were promised some sort of concession would be announced. We were expecting a form of retirement relief to be announced, but a brand new “Entrepreneur’s Relief” was introduced instead.

Entrepreneur’s relief is available to most, including individuals, trustees (in some circumstances), but not to limited companies.

You can claim Entrepreneur’s Relief when you sell all of your business, or even shares in your own company after 5th April 2008. The capital gain, when entrepreneur’s relief is applied, is taxed at an effective rate of 10%, instead of 18% or even 28%.

There are, however, some stiff limitations to entrepreneur’s relief:

  1. You must be selling all, or a material part, of your business, including:
  • Selling shares in a qualifying company. The shareholder MUST own at least 5% of the ordinary voting shares, as well as having been an officer or employee of said company
  • Selling the whole of your business
  • Selling partnership interest

If you sell the assets, without selling the actual business, or ceasing to trade, then this will not qualify for the relief. For example, if an accountant sold part of their practice, entrepreneur’s relief would not apply.

  1. You need to have owned the assets/shares for at least a year prior to the sale.
  2. The business must be defined as a trading business, which means that, for example, a property letting business would not qualify. A furnished holiday letting company, however, would.
  3. Entrepreneur’s relief only applies to capital gains made after 6th April 2008. Taxpayers are restricted under certain conditions to claiming this relief on lifetime gains up to £10 million worth of gains (£5 million prior to 6th April 2011, £2 million prior to 23rd June 2010, and £1 million prior to 6th April 2010.) For capital gains realised before 6th April 2010, and exceeding £1 million, no additional relief is given.

It may also be possible to claim relief where gains are deferred as a result of either the Enterprise Investment Scheme, or Venture Capital Trust investments.

When a material disposal relates to the sale of shares, or a partnership share, the person who is disposing is also able to claim relief against any gains made in the disposal of an asset that is used in the business. This later disposal can happen as long as 3 years after the original disposal. However, the relief is restricted if rent is charged on the property.

Need help with Capital Gains Tax - Entreprenuer's Relief?

Need more information, or help/advice regarding Entrepreneur’s Relief and whether or not you could claim it? Click here for a free, no-obligation telephone consultation. Or, you can Ask an Accountant by clicking here.

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Comments

Whats the rule regarding Entrepreneurs tax and how much cash you can have in the company at the time of disposal
Posted @ Tuesday, July 19, 2011 3:50 PM by Mark Harrington
Hi Mark, 
 
Entrepreneur's Relief is unavailable to companies.  
 
Hope that helps. 
 
Ben
Posted @ Wednesday, July 20, 2011 2:35 AM by Ben Williams
I own 6.2% of company shares and have been retired for 2.5 years.There is a possibility that the company will be sold. 
 
Can I benefit from Entrepreneurs’ Relief which means Cap Gains tax at 10%, or will I have to pay the usual 18/28%
Posted @ Saturday, January 14, 2012 6:36 AM by CHRISTOPHER LEE
Hi Christopher, 
 
Firstly, thanks for your comment; unfortunately, Entrepreneur's Relief is unavailable to Limited Companies such as yours.  
 
Hope that helps, 
Ben
Posted @ Monday, January 16, 2012 2:36 AM by Ben Williams
Ben, 
 
Thanks for your comment but the company is a PLC, not Limited. 
 
Will this make a difference. 
 
The issue I have is that I am told that you can only benefit from Entrepreneur’s Relief whilst you are employed. 
 
 
 
Posted @ Monday, January 16, 2012 3:20 AM by Christopher Lee
Hi Christopher, 
 
It would seem that for a PLC, if you have held more than 5% of the shares for over a year, then you can claim Entrepreneur's Relief. 
 
But I would urge you to either meet with your accountant, or with us for free if you would prefer, and have an in-depth discussion about this, as it can all depend on your personal circumstances; especially if you are retired. 
 
Hope this helps 
Ben
Posted @ Monday, January 16, 2012 4:56 AM by Ben Williams
Hi 
 
We have been trading for 50 years and a council are going to buy 'vacant occupancy' of our business unit which we lease from them, which will result in total extinguishment. They are not doing a CPO though. Are we entitled to Entrepreneur's Relief? Thanks
Posted @ Thursday, February 23, 2012 4:59 PM by Zoe
Hi Zoe, 
 
If your business is continuing after the disposal of the lease then entrepreneurs' relief will not be due, as it is only given on the disposal of a business, or a part of a business.  
 
If the business is ceasing or you are selling it, the availability of the relief depends on your business structure. If it is a sole trader or partnership and the proprietor/partners own the lease the relief should be available, although in the case of a partnership it will be restricted if the partnership paid the partners rent.  
 
If the business is a limited company and the company owns the lease the relief will not be available as it is only given to individuals. (Relief may be available on the disposal of the shares.)  
 
If the business is a limited company and the lease is held by the company's owners relief, should still be available, although it will be restricted if the company paid rent to the owners.  
 
The above is a brief summary of a complicated tax relief. To give proper advice on this question we would need detailed knowledge of your particular circumstances. 
 
Hope that helps!  
Ben
Posted @ Monday, February 27, 2012 5:14 AM by Ben Williams
Hi  
I have an unlimited company which I am thinking of selling. Do unlimited companies qualify for entrepeneurs relief?
Posted @ Monday, May 28, 2012 2:54 PM by Matt
Hi Matt, 
 
Yes, unincorporated businesses do qualify for entrepreneur's relief, under some circumstances. If you'd like to give us a call on 0800 612 2008 we'd be happy to help!
Posted @ Tuesday, May 29, 2012 2:29 AM by Ben Williams
3 years ago I arranged a Management buyout along with 3 other colleagues and now own 40% of the shares in the limited company. i am looking to sell my shares and retire, however, my colleagues will continue with the business. If i sell my shares, will i qualify for Entrepreneurs relief ? i have been told that i have to hold the shares for 5 years to qualify !
Posted @ Thursday, September 20, 2012 7:46 AM by Peter Marshall
Re my earlier question, just to clarify, my 40% shareholding is in a holding company which owns the shares / assets of the trading company
Posted @ Thursday, September 20, 2012 7:57 AM by Peter Marshall
Is entrepreneurial relief available when I am transferring my business to a limited company? This will involve a sale of goodwill.
Posted @ Wednesday, September 03, 2014 4:42 AM by J Jesner
hi I have a medical ltd co business and from the profits of the business have invested in 2 buy to let properties. Please confirm when ltd company ceases the business and sell the properties- will I be eligible for Enterpreneurs relief on the 100% share owned in the company (it would be less than 1 million pound sterling.many thanks skm
Posted @ Sunday, November 16, 2014 8:57 AM by sangeeta
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