Entrepreneurs’ Relief – Don’t Miss out on paying just 10% on all gains on qualifying assets!
Utilising Entrepreneurs’ Relief, you may be able to pay less Capital Gains Tax when you sell (or ‘dispose of’) all or part of your business. Entrepreneurs’ Relief means you’ll pay tax at 10% on all gains on qualifying assets.
A recent case posted online was about Entrepreneurs’ relief on share disposal. In D George v HMRC  UKFTT 509 , the FTT found that entrepreneurs’ relief) was not available on a disposal of shares as the vendor had not had voting rights for the required period of time, despite the fact that it had been agreed to enfranchise his shares more than a year before the disposal.
Entrepreneurs’ Relief reduces the amount of Capital Gains Tax (CGT) as long as you’ve met the qualifying conditions throughout a one-year qualifying period either up to the date of disposal or the date the business ceased.
The FTT accepted that Mr George and Mr Thornton had reached a ‘meeting of minds’ in February 2012. However, the tribunal was not satisfied that Mr Thornton had acted as agent for the other shareholders. Indeed, a special resolution was required to amend the articles of association in order to enfranchise Mr George’s shares. Furthermore, the terms of the enfranchisement had not been determined in February 2012, so that the agreement lacked the required certainty. There was also no evidence that Mr Thornton and Mr George had intended it to be binding.
We have noticed a trend of increasing activity by HMRC in this area and it is clearly a relief that is closely monitored. Failing to get it right can double your expected tax bill.
Work out if you qualify
You’ll qualify if you dispose of any of the following:
- all or part of your business as a sole trader or business partner – including the business’s assets after it closed
- shares or securities in a company where you have at least 5% of shares and voting rights (known as a ‘personal company’)
- shares you got through an Enterprise Management Incentive (EMI) scheme after 5 April 2013
- assets you lent to your business or personal company
Who can claim relief?
Entrepreneurs’ Relief is available to individuals and some trustees of settlements, but it’s not available to companies or personal representatives of deceased persons or in relation to a trust where the entire trust is a discretionary settlement.
Haslers would like to offer you a free review of your ER entitlement to make sure that you obtain 10% CGT and not 20% CGT. Please contact us to find out more.