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.
