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With Peter Griffiths, Tax Director at Hazlewoods LLP
Entrepreneurs’ Relief was introduced with effect from 6 April 2008. The relief is available for qualifying business disposals and reduces the rate of Capital Gains Tax (CGT) charged from 18% to 10%. Examples of qualifying business disposals are:
- the disposal of all or part of a sole trade or partnership
- the disposal of shares in a trading company, in which the vendor held at least 5% of the ordinary shares and votes, and was an officer or employee of the company( What about time period ?)
- the disposal of a property used in a business, which is associated with the vendor's withdrawal from the business
Entrepreneurs’ Relief effectively replaced Business Asset Taper relief, which reduced the maximum rate of CGT on the disposal of qualifying assets to 10% after two years of ownership, with no limit in value.
The assets in respect of which Entrepreneurs’ Relief can be claimed is much more restricted. For example, the relief will only be available on the sale of a property used in a business if the vendor is also reducing his ownership of the business, and will be restricted if a full market rent has been paid since 6 April 2008 (It is my understanding that you have to look at whole period of ownership and it is not restricted to period after April 2008). Additionally, a taxpayer has a lifetime limit of £1 million of gains. Therefore, taxpayers considering disposing of assets should confirm with their Tax Advisers whether any planned disposal will qualify for Entrepreneurs’ Relief, and if not, what planning can be undertaken to qualify for the relief. The relief has a one year qualifying period. Therefore, matters should be reviewed at least one year before a planned disposal (Will not help with property,earlier the better).
For example, if an individual is considering selling shares in a company, and is not currently an employee or officer of the relevant company, it may be possible to obtain relief by being appointed a Director for at least one year before the sale of the shares. Or, alternatively transferring the shares to a spouse who would qualify for the relief on a disposal, and then sell the shares.
These are just some examples of possible planning. To provide an opportunity for planning, it is essential that taxpayers consult their Tax Advisers at least one year before a sale.
For more information contact Peter Griffiths at our Staverton office on 01242 680000 or email peter.griffiths@hazlewoods.co.uk
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