If you are selling shares in all or part of your business, you might qualify for a Capital Gains tax relief called Entrepreneurs' Relief.
Below, you'll find a short guide providing a quick overview of the essentials - including how Entrepreneurs' Relief works, whether you're eligible for a claim and how you can make a claim. Keep in mind that this is a general guide, and we highly recommend speaking with an accountant before you make a claim.
What is entrepreneurs' relief?
Entrepreneurs' Relief is a scheme that reduces the amount of Capital Gains Tax payable when you dispose of (sell) shares in your business. Instead of the usual rates, you pay a reduced tax rate of 10% on the first £10 million of gains. There isn't a limit to the number of times you can claim.
How it saves you money
If you qualify for the relief, you will pay a tax rate of 10% on the first £10 million of gains you make. Gains above the first £10 million are taxed at the usual rate.
If you are a higher or additional rate taxpayer, this means that you will be paying about half the usual rate (which is either 20% or 28%). This amounts to tax savings of up to £1 million.
There is a lifetime allowance of £10 million of gains that can be taxed at the reduced rate. This applies to each individual, and not for each business that is sold.
Who can claim entrepreneurs' relief
Ordinarily, you can claim Entrepreneurs' Relief if you meet the following conditions:
- you are an employee or office holder of the company, for at least two years before you sell your shares
- the company has been trading for at least two years before you sell your shares
- the business must be a 'personal company' for at least two years before you sell your shares. This means that you need to own at least 5% of both the shares and voting rights.
- you must be entitled to at least 5% of the company's distributable profits or 5% of the company's net worth at its dissolution
If the company ceases trading, you can still qualify for Entrepreneurs' Relief if:
- the conditions above were met for the duration of the 24 month period prior to the company ceasing to trade
- disposals are made within three years after a company ceases trading
- assets distributed within the company are taxed as capital distribution not as income
If the shares are from an Enterprise Management Incentive (EMI), then further conditions apply:
- you must have bought the shares before April 2013
- you must have acquired the option to buy the shares at least a year before selling them
The rules surrounding Entrepreneurs' Relief can get complicated, so if there are aspects you are unsure about it is best to consult a qualified accountant.
How to claim entrepreneur's relief
You can claim the relief on your annual Self Assessment tax return, under the 'Capital Gains Summary' section.
It is also possible to claim Entrepreneurs' Relief on the sale of other assets which are not shares. The rules on this are different and it is best to discuss your individual case with a qualified accountant.
Deadlines for filing your claims
- For the 2019/20 tax year ending 5th April 2020, the deadline is 31st January 2022
- For the 2018/19 tax year ended 5th April 2019, the deadline is 31st January 2021
- For the 2017/18 tax year ended 5th April 2018, the deadline is 31st January 2020
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