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Document updated/added on 04.01.2019

Topic: Capital gains tax

Entrepreneurs' relief checklist
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Entrepreneurs' relief checklist

Entrepreneurs’ relief checklist

When you sell or transfer all or part of your business you might be entitled to claim entrepreneurs’ relief in respect of any capital gain you make. This means that the maximum rate of tax that will apply will be 10%. However, to qualify there are conditions that you and your business must meet.

When is relief available?

Entrepreneurs’ relief (ER) is available for qualifying business disposals. The relief imposes a lower rate of capital gains tax (10%) than the top standard rate of 18%, and is subject to a lifetime limit of £10 million of gains. The relief applies to disposals of a business, but can also apply to disposals of assets which are associated with your withdrawal from a business. For example, if you own a warehouse that your partnership uses and you leave the partnership, ER might apply if you sold the warehouse to the other partners.

Conditions

ER is only available where there is a qualifying disposal of business assets, which includes selling all (or a part, if that part can operate as a business in its own right) of them, or selling shares in your personal company. While it sounds simple, a number of traps in the legislation can mean ER won’t apply. The 2018 Budget tightened the rules up even further. Use our checklist ahead of a disposal. It won’t guarantee you ER, but it can help you avoid missing out for want of taking a few simple steps.

Using the checklist

The checklist contains a number of questions designed to be answered “Yes”, “No” or “Not applicable”. If you are considering selling your business or shares, run through the list. If you answer “No” to any of the questions, ER won’t apply and you should try to rectify the issue before the sale.

Example. Acom Ltd has five shareholders. One shareholder, John, was only recently made a director and bought in with a 10% shareholding. Acom has been approached by a competitor with an offer to buy all of the shares, which the members have voted to accept. The finer details are being sorted out; however, by using the checklist it becomes apparent that John’s gain will not qualify for ER as he will have only held his shares for eleven months prior to the proposed sale date. To help John the company could negoitate the sale of his shares a month later than the main sale to ensure he will qualify for ER.

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