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Entrepreneurs' Relief

Entrepreneurs' Relief HMRC

Information and advice about HM Revenue and Customs conditions for Entrepreneurs’ Relief, your eligibility, and how you can claim.

CAPITAL GAINS TAX ENTREPRENEURS' RELIEF: In some cases, claiming Entrepreneurs' Relief makes it possible to reduce the amount of Capital Gains Tax that you pay.

In some cases it can be reduced to 10% on all gains when you dispose of (or sell) qualifying shares, a company, or some of the business assets.

Entrepreneurs' Relief Qualifying Criteria

The qualifying conditions for Entrepreneurs' Relief include the disposing of;

Note: A trustee selling assets held in the trust may also qualify.

Selling All or Part of Your Business

If you sell all or a part of your business you must be sole trader or business partner and you must have owned the business for a minimum of 12 months before the date that you sell it to qualify for Entrepreneurs Relief.

The same conditions of qualification also apply if you decide to close your business instead. In this case you must also dispose of the business assets within 36 months to qualify for the same relief.

Selling Shares or Securities

There are two main conditions to follow if you intend to sell your shares in the company and they must both apply for at least 12 months before you selling the shares;

  1. you must be an employee or office holder of the company (or one in the same group)
  2. the chief activities of the company must be in trading (as opposed to non-trading activities like investment) - or it can be the holding company of a trading group

Beside those two stipulations, before you sell your shares, any of these two other conditions must also apply for at least one year;

Note: You can still qualify for Entrepreneurs' Relief if you sell your shares within 3 years even if the company ceases to be a trading company.

Selling Assets You Lent to the Business

Both of these two condition apply if you sell assets that you lent to the business;

  1. you must have sold a minimum of 5% of your part of a business partnership or your shares in a personal company
  2. you owned the assets but let your business partnership or personal company use them for at least one year up to the date you sold your business or shares (or the date the business closed)

Working Out Your Tax

The method you use to work out your tax will depend on whether all of your gains are eligible for Entrepreneurs’ Relief.

If All Your Gains Qualify for Entrepreneurs’ Relief

  1. Step one is working out the gain for all your qualifying business assets.
  2. Then add all the gains together (and deduct qualifying losses) to work out the total taxable gain that is eligible for Entrepreneurs’ Relief.
  3. Then you can deduct your tax-free allowance.
  4. The final step determines that you will pay 10% tax on the amount that remains.

Note: If you have other gains, the tax you pay on those depends on what Income Tax rate you pay and when you made your gain.

Higher Rate Income Tax Payers

Higher rate Income Tax payers will pay 28% tax on those gains which are made before 6 April 2016 that do not qualify for Entrepreneurs’ Relief. Gains made from 6 April 2016 that do not qualify for Entrepreneurs’ Relief you can expect to pay;

You can use your tax-free allowance against the gains that would be charged at the highest rates (e.g. where you would pay 28% tax).

Basic Rate Income Tax Payers

Basic rate taxpayers can use these steps to work out the tax rate that you can expect to pay on gains if they do not qualify for Entrepreneurs’ Relief.

  1. Work out how much taxable income you have and then deduct your Personal Allowance and any other Income Tax reliefs that you may be entitled to.
  2. Deduct this amount from the basic rate tax band for the year you made the gains (£31,785 for the 2015 to 2016 tax year). This gives you the amount of basic rate band you can use against your gains.
  3. Work out your total taxable gain.
  4. Use your basic rate band first against any gains eligible for Entrepreneurs’ Relief (you will pay 10% tax on these).
  5. Use any remaining basic rate band against your other gains. You will pay 18% on gains made before 6 April 2016. For gains made after this you will pay 18% on gains made on residential property and 10% on gains from all other chargeable assets.
  6. For gains above the basic rate band you will pay 28% on gains made before 6 April 2016. For gains made after this you will pay 28% on gains made on residential property and 20% on gains from all other chargeable assets.
  7. You can use your tax-free allowance against the gains that would be charged at the highest rates (e.g. where you would pay 28% tax).

Where to get Help - You can contact HM Revenue and Customs or seek professional help from a tax adviser.

How to Claim Entrepreneurs' Relief

The process for claiming Entrepreneurs' Relief on tax return means you can either do it through your Self Assessment tax return or alternatively by filling in Section A of the specific helpsheet.

Entrepreneurs' Relief Claim Deadline

Tax year when you sold or closed your business Deadline to claim Entrepreneurs’ Relief
2016 to 2017 31 January 2019
2015 to 2016 31 January 2018
2014 to 2015 31 January 2017

Note: Even though there is no limit as to how many times you can claim for Entrepreneurs' Relief, the maximum amount of relief that you can claim during your lifetime is £10 million.

Entrepreneurs' Relief HM Revenue and Customs; UK Rules Updated 2017