Updated: 31st January 2020
Entrepreneurs’ Relief is a tax relief scheme which allows you to reduce the effective rate of Capital Gains Tax (CGT) from a top rate of 20% down to 10% on the sale or disposal of qualifying assets. This can represent a huge tax saving for company directors, sole traders, and business partners, and is available to spouses and civil partners if they also meet the qualifying conditions.
In order to benefit as a company director or employee, you must have a minimum shareholding of 5% when the sale or disposal is made. There is no limit to the number of businesses you can sell throughout your career and still qualify for this scheme, instead Entrepreneurs’ Relief has a lifetime limit set at £1 million of capital gains.
Entrepreneurs’ Relief is in the spotlight and could be dramatically reformed or even abolished this Spring. If you are considering a solvent liquidation of your company – or are thinking of selling, NOW is the time to act.
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When you dispose of a business, or part of a business, you may be eligible to claim Entrepreneurs’ Tax Relief. Disposal can be facilitated through a sale or gifting of the business, or closing down the company through a solvent liquidation procedure known as Members’ Voluntary Liquidation (MVL).
By claiming Entrepreneurs’ Relief you reduce the liability for CGT, but you must meet the qualifying conditions during the two years prior to the disposal or sale.
Entrepreneurs’ Relief is most commonly claimed via your self-assessment tax return, however, if this is not possible you can also submit a claim by writing to HMRC, or by completing Section A of the ‘Claim for Entrepreneurs’ Relief’ HS275 form which is available online.
The deadline for claiming is the 31 January of the year following the tax year in which the sale or disposal was made.
Rishi Sunak, Chancellor of the Exchequer, announced changes to the exisiting Entrepreneurs’ Relief scheme during his first Budget speech in March 2020. Following growing calls to amend, or even abolish, Entrepreneurs' Relief completely, Sunak revealed that the lifetime limit of qualifying gains would be reducing from £10m down to £1m. This brings the lifetime limit back down to the original level when the tax break was first introduced by Gordon Brown in 2008.
Any gains above £1m will be subject to standard CGT rates which are 20% for higher rate taxpayers.
At Real Business Rescue, our licensed insolvency practitioners and experienced business advisers are well placed to support you through your business exit strategy and provide industry-leading advice on Entrepreneurs’ Relief. We provide a free initial consultation at your convenience and assist directors, shareholders, and stakeholders across the UK through an extensive network of 79 offices.