This section has information on the qualifying conditions for claiming HMRC Entrepreneurs' Relief. Check how to pay less Capital Gains Tax after you sell or 'dispose of' a business (or part of it).
ENTREPRENEURS RELIEF QUALIFYING CRITERIA: You could pay tax at 10% on the gains of assets that qualify for Entrepreneurs' Relief. They include the disposing of:
All or part of a business as a sole trader or a business partner (including assets of the business after it closed).
Shares or securities in a 'personal company' if you have 5% (or more) shares and voting rights.
Shares acquired through an Enterprise Management Incentive (EMI) scheme after the 5th of April 2013.
Assets which you lent to the business or to your personal company.
Note: A trustee selling assets held in the trust may also qualify for HM Revenue and Customs Entrepreneurs' Relief.
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. You must also 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 (3 years) to qualify for the same relief.
Restrictions on Selling Shares or Securities
There are two main conditions to follow if you intend to sell your shares in the company. They must both apply for at least 12 months before selling the shares:
You must be an employee or have office holder status in the company (or one in the same group of companies).
The chief activities of the company must be in trading (as opposed to non-trading activities like investment). It can also be the holding company of a trading group.
Entrepreneurs' Relief on EMI Shares
Beside those two stipulations, before you sell your shares, any of these two other conditions must also apply for at least one year:
You own a minimum of 5% of shares and voting rights in the company (if not EMI shares).
You had an option to buy them at least one year before selling them (if EMI shares).
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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:
You must have sold a minimum of 5% of your part of a business partnership or your shares in a personal company.
You owned the assets. But, you let the 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 Calculation
The method that you use to work out your tax will depend on whether all the gains are eligible for Entrepreneurs’ Relief.
If All Your Gains Qualify for Entrepreneurs’ Relief
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 rates you pay and when you made your gain.
Higher Rate Income Tax Payers
Higher rate Income Tax payers will pay 28% tax on gains made before the 6th of April 2016 that are not eligible for Entrepreneurs' Relief. On gains made from the 6th of April 2016 that do not qualify for Entrepreneurs' Relief you can expect to pay:
28% on gains realised from residential property.
20% on gains made from other chargeable assets.
You can use the tax-free allowance against gains that would get 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.
Use your basic rate band first against any gains eligible for Entrepreneurs' Relief (you pay 10% tax on these).
Use any remaining basic rate band against any other gains. You pay 18% on gains made before the 6th of 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.
On gains above the basic rate band you will pay 28% on those made before the 6th of April 2016. For gains made after this, you pay 28% on gains made on residential property and 20% on gains from all other chargeable assets.
Use your tax-free allowance against the gains that would get charged at the highest rates (e.g. where you would pay 28% tax).