If you have reached a point in your life when you are considering selling your business to contribute towards your future financial security, then it is worth knowing about entrepreneur relief and how this can help you to reduce the amount of capital gains tax you will pay on the sale of your business. The purpose of this article is to provide technical and generic guidance and should not be interpreted as a personal recommendation. It represents our interpretation of current legislation and HMRC practice and may change in the future.
Entrepreneurs relief replaced the business taper tax relief and from 23 June 2010 this relief has allowed business owners to reduce the rate of tax to 10% on cumulative lifetime gains of up to ?5m. Given that many business owners and managers will rely considerably on the proceeds of their business sale to contribute to securing their financial future, understanding this new relief is vital for business owners and their financial advisors alike.
In order to benefit from this new entrepreneur relief there are several conditions that need to be met, notably that the relief can only be claimed by individuals. This includes sole traders, partnerships or individuals with shares in their own limited company.
Secondly, you must have owned the business for 12 months prior to claiming the relief or for 12 months before the date when the business ceased trading.
Entrepreneurs relief can be claimed on proceeds from a partial or full sale of a business, the shares in the company or any assets which remain after the business stops trading. The sale of an asset in isolation will not qualify for the relief.
It is not just the business owners who may claim this relief. Providing all the qualifying conditions are met, non-executive directors and the company secretary can also claim entrepreneur relief as they are all officers of the company.
You can claim entrepreneurs relief as many times as you want, although it is subject to a lifetime allowance of ?5m. The relief is given by taxing the qualifying gain at 10%. If available the annual exempt amount can be applied to the taxable gain to reduce the amount subject to tax. Please note that some forms of tax planning are not regulated by the Financial Services Authority.
Author Resource:-
For advice on claiming the entrepreneur relief please visit the Donald Asset Management site where you find a wealth of information for business owners including advice on entrepreneurs relief. Donald Asset Management Ltd is authorised and regulated by the Financial Services Authority.
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