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:
- 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.
- You need to have owned the assets/shares for at least a year prior to the sale.
- 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.
- 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.
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