What is Entrepreneurs’ Relief?
Entrepreneurs’ Relief (ER) applies a reduced rate of 10% Capital Gains Tax (CGT) to qualifying gains up to a lifetime limit, which is currently £10 million. Where ER does not apply, gains are taxed at 10% to the extent that an individual’s taxable income for the year falls below the basic rate band upper limit and at 20% on the remaining balance.
Who qualifies for Entrepreneurs’ Relief?
Broadly speaking, ER applies to gains made on disposals of the whole or part of an interest in a trading business, or of an asset used in the business, by individuals who:
- Are employees or officers of a business; and also
- Own the business as either a sole trader, a partner in a partnership or as a 5%+ shareholder in a company.
The above criteria must have been met for at least two years immediately prior to the disposal in order for it to qualify for ER.
Reform
The Conservative government’s manifesto highlighted ER as an area of taxation to be ‘reviewed and reformed’. The tax relief has also been criticised by HM Treasury as being too generous to investors. The first post-election Budget will be delivered on 11 March 2020 and is expected to outline the government’s new approach to the relief. At the time of writing, it is unclear how extensive the changes will be or whether the relief will be abolished altogether.
What action should you take?
Changes could take effect from the beginning of the 2020/21 tax year (i.e. 6 April 2020), or following a consultation period for the new legislation.
If you have plans to sell a business which currently meets the criteria for ER, these announcements leave you with a potentially limited amount of time in which to achieve the disposal and make use of the relief.
Should you require any assistance with the sale of your business, please our Corporate and Commercial Team on 0345 646 0406 or fill in our online enquiry form and a member of our Team will be in touch.