What is Entrepreneurs Relief?
Entrepreneurs relief allows you to pay less capital gains tax, at 10% on gains of all qualifying assets which are sold. It is applied when you sell your business, and usually in a Members Voluntary Liquidation (MVL). For more information regarding the MVL and Entrepreneurs relief, see our page on MVL here (https://www.companyrescue.co.uk/your-options/closing-down-a-limited-company/members-voluntary-liquidation-mvl/). Capital Gains Tax is the tax on profit when you are selling something which has increased by value.
Am I Eligible For The Relief?
To qualify for Entrepreneurs relief, you must meet one or more of the following criteria:
- You must be disposing all or a part of a business, where you were a sole trader or business partner. Even if you dispose of the assets after, you are still eligible. However, you must own the business for over a year before you sell it and if you are closing the business, the assets must be sold within 3 years.
- You have at least 5% shares or securities or voting rights within the company being sold. You are also eligible if you have had the chance to buy your shares at least a year before the sale. For this, you must have been an employee of the firm for at least a year, and the company must be one which focuses on trading, instead of those which involve little trading, for example, those who focus purely on investment.
- You lent an asset to the business and it is being sold. This only applies if your assets were used for a year before the shares were sold, or if you have already sold 5% of your part of the business or shares.
- You’re selling shares which you got through an Enterprise Management Incentive scheme, after the 5th April 2013.
How do I work out the tax I will have to pay?
- Work out the gains of all the qualifying assets
- Add all the gains together (deduct any losses) to get the total taxable gain available for Entrepreneur’s Relief
- Deduct any tax-free allowance
- You will pay 10% tax on what is left.
How do I actually claim for Entrepreneurs Relief?
To claim for Entrepreneurs Relief, you can do it by filling in Section A of the Entrepreneurs’ Relief Help sheet found here https://www.gov.uk/government/publications/entrepreneurs-relief-hs275-self-assessment-helpsheet , or you can do it via your Self-Assessment tax return.
During your lifetime you can claim up to £10 million relief, with no limit on how many times you can claim for it.