Entrepreneurs’ Relief reduces the amount of Capital Gains Tax payable when you dispose of (sell) shares in all or part of your business. It results in a tax rate of 10% on the value of the disposal. There’s no limit to how many times you can claim and you can claim up to £10 million of relief during your lifetime. The same rules apply regardless of the rate of income tax you pay.
Who can claim Entrepreneurs’ Relief?
In order to qualify for Entrepreneurs’ Relief you need to meet all of these conditions:
- The person disposing of shares must own at least 5% of the ordinary share capital of the company, which must entitle him to at least 5% of the votes.
- The disposer must also be an officer or employee of the company, and all employment conditions must be met for at least the 12 months leading up to the disposal.
- The company must be a trading company in the 12 months leading up to the date of disposal.
Where it is intended to cease trading and wind the company up by striking it off as inactive, the relief can still apply provided:
- the distribution of any assets in the company is taxed as a capital distribution and not as income
- the distribution takes place within three years of when the company ceased trading
- the relevant conditions (points 1, 2 and 3 above) were met in the 12 months prior to the company ceasing to trade.
Deadlines for claiming Entrepreneurs’ Relief
To avoid missing the boat, you need to claim Entrepreneurs’ Relief by the first anniversary of the 31st January following the tax year of the disposal of shares:
|Tax year (6th April to 5th April) when you sold or closed your business
||Deadline to claim Entrepreneurs’ Relief
|2018 to 2019
||31st January 2021
|2017 to 2018
||31st January 2020
|2016 to 2017
||31st January 2019
How to claim Entrepreneurs’ Relief
You can make a claim on your annual Self Assessment return in the supplementary ‘Capital Gains Summary’ section. However, seeking advice beforehand from an accountant is highly recommended. If you’re wanting information on how to value your business read our article “Six simple ways to value a business”.
Other Entrepreneurs’ Relief rules apply if selling other assets (ie. not shares). Please speak with your accountant for bespoke advice in this area.
As always, this article is only provided for general information, so for specific advice on your individual circumstances, please speak with your accountant.