Introduction
- The Approach to this and all Articles is consistent with our Standard System and Procedure.
- The Name of this relief has been changed to Business Asset Disposal Relief.
- This is to reflect the true nature and the real purpose for which it was set up.
What is Entrepreneurs’ relief?
- This is a Capital Gains Tax relief when selling (disposing) all or part of your business.
- From 6 April 2020 this is now known as Business Asset Disposal Relief.
- It allows you to apply a reduced rate of 10% capital gains tax on the profits you make when you sell qualifying assets.
How much can be claimed?
- There is a £1 million lifetime allowance.
- Can have as many claims as required, up to the limit.
Qualifying Conditions
- Entrepreneurs Relief is available to individuals not businesses.
- If disposing of all or part of a business, both of the following must apply for at least 2 years up to the date you sell your business:
- you’re a sole trader or business partner.
- you’ve owned the business/shares for at least 2 years.
- The same conditions apply if you’re closing your business instead.
- You must also dispose of your business assets within 3 years to qualify for relief.
- If selling shares, both of the following must apply for at least 2 years up to the date you sell your shares:
- you’re an employee or office holder of the company (or one in the same group).
- the company’s main activities are in trading (rather than non-trading activities like investment) – or it’s the holding company of a trading group.
Enterprise Management Incentive (EMI)
- There are also other rules depending on whether or not the shares are from an Enterprise Management Incentive (EMI).
- If the shares are from an EMI, you must have both:
- bought the shares after 5 April 2013.
- been given the option to buy them at least 2 years before selling them.
- If the shares are not from an EMI.
- For at least 2 years before you sell your shares, the business must be a ‘personal company’.
- This means that you have at least 5% of both the:
- shares.
- voting rights.
- You must also be entitled to at least 5% of either:
- profits that are available for distribution and assets on winding up the company.
- disposal proceeds if the company is sold.
- If the number of shares you hold falls below 5% because the company has issued more shares, you may still be able to claim Business Asset Disposal Relief.
- You need to choose or ‘elect’ to be treated as if you had sold and re-bought your shares immediately before the new shares were issued.
- This will create a gain on which you can claim Business Asset Disposal Relief.
- You can also choose or ‘elect’ to postpone paying tax on that gain until you come to sell your shares.
- If the company stops being a trading company, you can still qualify for relief if you sell your shares within 3 years.
Useful Links
- Entrepreneurs Relief change of name
- gov.uk how to apply
- Entrepreneurs Relief Handbook