Reduce your tax bill through Entrepreneurs relief

What is Entrepreneurs Relief?

Subject to satisfying the relevant conditions, Entrepreneurs Relief (ER) allows individuals and trustees to claim relief on gains made on the disposal of a business, assets of a business or shares in a company whereby that rate of capital gains tax payable is reduced to a maximum of 10%. The maximum lifetime limit to which this relief applies is £10 million.  

Who qualifies for Entrepreneurs Relief?

The relief is available to individuals and some trustees of settlements (but it is not available to companies) - generally it is available to individuals who:

  • are in business as a sole trader or as a partner in a trading business, or
  • hold shares in a personal trading company

Conditions for Entrepreneurs Relief

The conditions for relief depend upon how a business is conducted.

If the relief is to be applied to the disposal of an unincorporated business then the individual must have operated the business as a sole trader or partner throughout the period of twelve months prior to the disposal. 

Alternatively if the relief is to be applied to the disposal of a personal trading company then the following conditions must all be satisfied throughout the period of twelve months prior to disposal: 

  • the individual must have been an employee or officer of the company 
  • the individual must hold at least 5% of ordinary shares for the company with 5% of the voting rights
  • the company must have been a trading company or the holding company of a trading group

In addition to the above, Entrepreneurs Relief can also be claimed on the disposal of assets used by a taxpayer in their unincorporated business or personal trading company, if that disposal is associated with the withdrawal of the taxpayer from that business.

The above conditions seem straightforward but great care is needed to ensure that they are not inadvertently missed, for example a director/shareholder retiring prior to disposing of his shares, as seemingly innocuous actions can have a massive impact upon the availability of this valuable relief. 

To find out more about how you could benefit and utilise Entrepreneurs Relief, please contact a taylorcocks member of staff.