Entrepreneur’s Relief

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The Entrepreneur’s Relief was created in order to incentivise those people who are looking to set up and grow businesses by providing a reduced level of Capital Gains Tax on business disposals. To put it into simpler terms, if you happen to be a business owner who is looking to wind up or sell your business, the Entrepreneur’s Relief can help save you from a small fortune in tax billings.
Woman riding a start-up business rocket

This scheme enables entrepreneurs who are selling all or even a portion of their business off to pay just 10 percent in Capital Gains Tax on their profits over the lifetime of their business. This 10 percent is considerably lesser than the 18 percent for the basic income tax payers or the 20 percent charged to the higher rate payers, which would be charged if not for this relief. Over their lifetime, business owners can claim up to 10 million pounds over their lifetime under this scheme.

This relief will be made available to sole traders and partners selling or gifting part of their business and to company directors and employees that hold at least 5 percent of shares and voting rights in a qualifying company that will share their some or all of their shareholding.

In the year 2010, this relief changed to the qualifying gains that were rising from the 23rd of June in 2010 to be taxed at a flat rate of 10 percent. That removed the previous 4/9ths of it to be removed.

Conditions for Relief

There are a number of conditions that have to be met in order to become able to claim relief. It depends on the type of business disposal that you have made. The facility of this relief is available when:

  • There is a material disposal of business assets
  • There is a disposal related to a material disposal
  • There is a disposal of trusted business assets

Disposal of a Material Asset

If the person is selling only a part of the business, this part has to be considered capable of being continued as a going concern. The disposal of assets that do not constitute a sale of business capable of being carried forward on its own does not qualify for the facility of relief. The definition of a material disposal depends on the kind of asset which has been sold.

In the case of a sale or gift of the whole or part of the business, it absolutely must have to have been owned by the person selling it throughout the year ending on the date when the disposal or cessation of the business is taking place. It has to have been owned by the person liable to pay the tax for at least one year before the cessation and it has to be sold within three years of it being ceased.

In the case of the sale or gifting of shares or securities in the company, the disposal will be considered material if throughout the year before the disposal of shares the company had ceased trading the company is a trading company. The company has to be the tax payer’s personal property. It will also be considered material if the taxpayer is an officer or employee of the company or even another company in the same group of companies.

The Entrepreneur’s relief is only given in the context of significant business assets like the premises is an asset used for the business. This means that businesses cannot get relief for chargeable assets that were bought inside the year as long as they are also brought into usage by the business within that timeframe. Relevant business assets are not a necessity when it comes to the sharing or selling of shares and securities.

How to Claim and Report Entrepreneur’s Relief

The tax relief must be claimed by the 31st of January which follows the tax year of when the disposal was made. The gains are reported through the usual means on the Capital Gains summary supplementary pages according to the type of asset that has been sold. The calculations of the gains have to be attached and submitted along with the tax return.

Depending on the type of asset being sold, the relief is claimed by crossing the boxes 20, 26 and 34 in the white space on the page CG2. The whole process is quite complicated and can be troublesome for most to pursue without having the proper legal guidance. It is always a good practice to seek legal advice from legal experts who are trained in order to be able to guide you through the process without burning a hole in your pocket.

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