Entrepreneurs’ relief is a relief from capital gains tax. It applies to the first £10 million of qualifying capital gains (after deduction of any related losses) in respect of which an individual (or a trustee in certain circumstances) makes a claim and reduces the rate of tax applicable to that gain to 10%.
Qualifying capital gains are those arising on disposals by individuals of:
- Shares (or securities) of a trading company or holding company of a trading group, if, throughout the period of one year before the disposal, the taxpayer has been an officer or employee of the company (or a company in the same group) and holds at least 5% of the ordinary share capital, allowing him to exercise at least 5% of the voting rights. For disposals on or after 29 October 2018, the taxpayer’s shares must also have the right to 5% of distributable profits and 5% of the company’s assets available to equity holders on a winding up. Furthermore, the qualifying period is increased from 12 months to 24 months for disposals on or after 6 April 2019.
Shares issued on the exercise of Enterprise Management Scheme options on or after 6 April 2012 qualify for entrepreneurs’ relief even if they are not part of a holding that represents 5% of the shares in the company. In addition, the required holding period of 12 months (or 24 months, as applicable) includes the period the EMI option is held by the employee.
Relief is also available if the company has ceased trading, provided the conditions above were satisfied throughout the period of one year (increased to two years from 6 April 2019) ending with the date on which the company ceased trading, and the trading ceased within the period of three years ending with the date of the disposal.
- The whole or part of a business as a going concern, provided the business has been owned by the individual (whether as a sole trader or in partnership) throughout the period of one year (increased to two years from 6 April 2019) ending with the date of the disposal. Shares and securities and other assets held by the business for investment purposes or assets not used for the purposes of the business, will not qualify for relief. In effect, this means that there must be a disposal of the whole or part of a trade (qualifying business). The legislation extends the meaning of a disposal of the whole or part of a business to ensure that the following are within the scope of the relief:
o disposals by sole traders when converting to a partnership;
o part disposals by existing partners when a new partner joins a partnership; and
o full disposals by partners.
- Assets formerly used in a qualifying business which ceased trading, rather than being sold as a going concern, if they are sold within three years after cessation of the business and the business has been owned by the individual (whether as a sole trader or in partnership) throughout the period of one year (increased to two years from 6 April 2019) ending with the date on which the business ceases to be carried on.
- Personal assets used by a trading company or partnership, if they were owned by someone qualifying for the relief on a disposal of the business or shares or other securities in the company (see above) and the individual is withdrawing from the business. With effect from 18 March 2015, withdrawal from the business for these purposes means reducing the partner’s share in the partnership capital by an amount equal to at least 5% of the assets of the partnership or, for a partner who within five years prior to the date of disposal held at least 5% but now holds less, disposing of their residual interest in the partnership. In the case of a shareholder, it means reducing their shareholding in the company by 5% of the relevant share capital of the company. It does not relate to the number of hours worked in the business. For disposals of personal assets after 16 June 2016, the individual must have owned the asset for at least three years at the date of disposal.
Let Fairtax help you to claim Entrepreneurs Relief
At Fairtax, our expert tax team have many years of experience in the complexities of ER, we can help you to reduce your Capital Gains tax burden, whilst ensuring that you remain on the right side of the law and the rapidly changing legislative frameworks. There’s no limit to how many times you can claim Entrepreneurs’ Relief, and you can claim up to £10 million of relief during your lifetime.
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For immediate advice and guidance on Enterprise Relief, please contact our Tax Partners, Stephen Elliott or Patrick Morris on 0333 577 1940. Alternatively you can fill in the enquiry form at the footer of this page.
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