Initially, Entrepreneur’s Relief allowed every business-owner to pay the same 10% rate on the first £1million of business sale proceeds. In former Chancellor Alistair Darling’s final budget, he doubled the lifetime allowance to £2million. Then, during the ‘emergency budget’ it was extended to a further £5million from June 2010. An entrepreneur is often seen as a business leader, and as the economy grew – and those taking the risks and reaping the rewards increased in numbers – the lifetime limit was extended to £10million during the 2011 budget. This took effect from April 2011 and has remained unchanged ever since.
So, as an entrepreneur, what do you need to know?
– entrepreneur’s relief can only be claimed by an individual – for example, if you are a sole trader, or in a partnership, or if you hold shares in your own limited company
– you need to have owned the business for a minimum of one year before disposing of it
– the relief can be claimed on all or part of a business, the shares in it, or business assets after it has ceased trading
– the same conditions apply if you are deliberately closing your business and ceasing to trade
– limited companies, who might hold shares in other companies, cannot claim Entrepreneur’s Relief (although some trustees can)
If you decide that you would like to sell shares in your company, both of the following must apply: – you need to be an employee of the company, or an ‘office holder’ of the company – the company’s main activity must be trading (rather than a non-trading activity such as investment) There are also additional conditions to satisfy if a similar trade is undertaken within a 2-year period.
And if you are a higher rate income tax payer …
At the time of writing (Aug 2017) you will pay 28% tax on any gains made before April 2016 that don’t qualify for Entrepreneur’s Relief. For any gains made after April 2016, which don’t qualify for Entrepreneur’s Relief, you would pay:
– 28% on gains from residential property
– 20% on gains made from other chargeable assets
Clearly this can be rather a complicated area of tax to navigate to your best advantage. For a no obligation chat or meeting about Entrepreneur’s Relief, please email Chris.Monks @affordbond.com or contact Chris at our Wilmslow accountants office, using the contact form here on our website.