If you’re an entrepreneur and have your own business, there may come a day when you decide to exit the business for one reason or another. When that day comes the last thing you need during that process is to be hit with a large Capital Gains Tax (CGT) bill – a tax payable on profits or gains you make when selling an asset.
Entrepreneurs’ Relief is a tax relief scheme that was introduced to incentivise entrepreneurship in the UK providing relief for business owners looking to exit. The scheme itself helps reduce business owners’ CGT bill by allowing higher and additional-rate taxpayers to use the 10% rate when selling all or part of a business.
Can I claim Entrepreneurs’ Relief?
Entrepreneurs’ Relief is available to business owners, company directors and shareholders. If you fall into one of these categories then you may be able to claim.
How can I use Entrepreneurs’ Relief?
Entrepreneurs’ Relief can help reduce your CGT bill in various different situations, however there will be conditions depending on how you are looking to exit your business and/or selling assets;
If you’re selling a business or part of it, you will qualify for Entrepreneurs’ Relief if the following conditions have been in place for at least two years prior to the sale.
- you’re a sole trader or business partner
- you’ve owned the business for at least two years
If you’re selling assets that you lent to your business because you’re selling your business or shares, or the business has closed, you will qualify for Entrepreneurs’ Relief if:
- the business had access to these assets for at least one year prior to the date of the sale or closure of the business
- you have sold at least 5% of your part of a business partnership or at least 5% of your shares in a personal company
If you’re selling shares or securities in a company, you will qualify for Entrepreneurs’ Relief if the following conditions have been in place for at least two years prior to the sale:
- you have been an employee or office holder of the company (or the group that it’s in) for at least two years
- the company is a ‘trading’ company or the holding company of a trading group
There are also conditions that relate to whether the shares you are selling were originally acquired through an Enterprise Management Incentive (EMI).
How can I claim Entrepreneurs’ Relief?
Once you have disposed of your business or business assets and received payment, you’ll incur CGT on any profits made. You can claim the Relief through submitting your self assessment tax return.
How much can I claim through Entrepreneurs’ Relief?
Since the Chancellor announced the Spring Budget on 11 March 2020, the maximum amount you can claim through Entrepreneurs’ Relief has reduced from £10m down to £1m. This is a lifetime limit, which means you can claim as many times as you like as long as you do not exceed this amount overall.
Be sure to check out our top 25 tax tips and advice on how to manage the impact of Covid-19. If you’d like to discuss your entrepreneurs’ relief and discover how we can help you claim, feel free to contact us.
