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What is Entrepreneurs Relief? The Facts…

Author

Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

Entrepreneurs Relief… What is it?

Introduction

Entrepreneurs Relief has been in the headlines quite a bit recently. Those left leaning political parties and commentators see it as a big giveaway to the wealthy. Is this the case, we will let you be the judge of that!

First and foremost, Entrepreneurs Relief is a relief for Capital Gains Tax (CGT) purposes. It is available on qualifying business disposals.

As the name suggests the relief is available to individuals. It is also available to Trustees in certain circumstances. It is not, however, available to corporate bodies that sell assets. So, where a purchaser wants to buy the assets of a business, Entrepreneurs Relief will not be directly available.

The relief is only available on the disposal of trading, or deemed trading, assets. As such, investment property will not qualify for the relief.

What is the Effect of Entrepreneurs Relief?

The effect of Entrepreneurs Relief is that is reduces the effective rate of CGT to 10% from the current top rate of 20% for most relevant assets.

However, there is a cap on Entrepreneurs Relief. One may only obtain the relief a total of £10m [Note, following Budget 2020, this is now restricted to £1m with effect from 11 March 2020] of chargeable gains in one’s lifetime.

Where any gains exceed the lifetime allowance then the normal rates of CGT will apply.

The relief does not apply to carried interest gains which are taxed at 28%. It should also be noted that residential property, which is also taxed at 28%, is also unlikely to qualify for the relief.

What Types of Business Disposal does Entrepreneurs Relief Apply to?

The relief will apply where there is a “material disposal” of business assets. The following disposals will qualify as such:

  • Business or part of a business:
  • Assets of a business following cessation
  • Shares / securities
  • Joint venture interest
  • Trust business assets
  • A disposal associated with a material disposal

If you, or your clients, are considering disposing of any business assets then we would recommend obtaining tax advice in advance of such a transaction as relief might be secured with some pre-sale planning.

If you have any queries regarding this article then please do get in touch.

For our full and detailed sign post document on Entrepreneurs Relief then please visit here.

This article was last updated on 16 November 2019

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