Entrepreneurs’ Relief is available to individuals and some trustees in respect of capital gains made on the disposal of all or part of a business, business assets if the business has stopped trading and in certain cases shares owned in respect of a business. This relief is aimed at the individual and therefore whilst most partnerships can take advantage, the relief is not available for companies.
At inception, in the tax year 2008/9, Entrepreneur’s Relief applied to disposals not exceeding £1million. This sum has gradually been increased up to the present limit of £10million which came into force in April 2011. Subject to phasing, the limit is available throughout an individual’s lifetime, allowing them to set up, run and dispose of a number of businesses, provided those disposals do not exceed the lifetime allowance cap.
The calculation of the rate of Entrepreneur’s Relief also varies dependant on the date of disposal. Currently, the relief allows qualifying capital gains to be calculated at 10%. This relief applies to disposals made on or after 23 June 2010. All claims for Entrepreneur’s Relief must be made by the first anniversary of the 31 January following the end of the tax year in which the disposal took place. So, for example, for disposals made in the tax year 2010/11, claims have to be made by 31 January 2013.
The ability to claim Entrepreneur’s Relief is subject to meeting certain conditions throughout a preceding qualifying period. For this reason it is important that the implications of Entrepreneur’s Relief are carefully considered when setting up a business as well as in any discussions surrounding business restructuring, partnership agreements and so on. For example, a partner stepping down from and disposing of their share in a partnership may qualify for Entrepreneur’s Relief as may a director stepping down from and disposing of his shares within a company, provided he held more than 5% of the shares.
For the purposes of calculating Entrepreneur’s Relief, spouses or partners are counted as separate individuals and are therefore both entitled to claim relief, subject to meeting the qualifying criteria.
As tax mitigation specialists Newshams are able to give advice on tax matters, including Entrepreneur’s Relief, how tax may affect any private or business transaction and how to put in place an effective mitigation strategy.
Contact us now on 020 7470 8820 and ask to speak to a tax adviser about the implications of Entrepreneur’s Relief or e-mail us at firstname.lastname@example.org and we’ll get straight back to you.
23 February 2012