Entrepreneurs Relief may be claimed by individuals or trustees who sell shares or securities in a trading company or dispose of the whole or part of a trading business, providing certain conditions are met.
The relief is available on up to £10 million of lifetime gains arising from 6 April 2008. Gains realised before 6 April 2008 do not restrict the availability of the lifetime limit. As the relief can reduce the effective rate of tax from 28% to 10%, it can be worth up to £1.8 million in tax savings for each individual.
The relief is not mandatory and must be claimed on or before the first anniversary of 31 January following the tax year in which the qualifying disposal is made. Where, for example, a gain is made in 2013/14 the claim must be made by 31 January 2016.
The qualifying conditions to claim the relief vary depending on whether an individual is selling shares in a trading company or disposing of an interest in a business. In addition there are different criteria where trustees are seeking to claim the relief.
In order to claim the relief on the sale of shares, the following conditions must be met:
Accordingly it is possible to claim the relief where perhaps a company has ceased to trade and entered voluntary liquidation, but capital distributions are made by the liquidator to the shareholders within 3 years of the company ceasing to trade.
Where the above conditions are met, the relief may be extended to include gains made on ‘associated disposals’ of assets owned personally, but used in the company’s trade.
An example is where an individual shareholder personally owns the property from which the company trades and the property is to be sold at the same time as the shares are sold.
Care should be taken however where a full commercial rent is being charged to the company for the use of the property as this may result in the relief being denied or restricted.
Where an individual is in business as a sole trader or in partnership, the disposal of that business interest may qualify for the relief providing the following conditions are met:
In the event that the business ceases to trade but is not sold, the relief may be claimed against capital gains arising on assets used in the business, providing these are sold within 3 years of the business ceasing to trade.
For trustees to qualify for the relief on either the sale of shares or on business interests, the following conditions need to be met:
The second condition must be met throughout the 12 month period leading up to the date of sale.
Entrepreneurs’ relief is a relatively new relief and in our experience entitlement to the relief is often misunderstood. There are many pitfalls and early consideration of the key issues is crucial so that planning opportunities may be identified in good time.
To ensure that you qualify for this valuable relief it is essential that you review your entitlement to the relief at the earliest opportunity. If you would like to know more about Entrepreneurs Relief, For more information please contact a member of our tax team or your usual adviser at Wilkins Kennedy.
Paul Hopper, Director - Tax
T: 01962 852263
Information on the Wilkins Kennedy website is not intended to give specific technical advice and it should not be read as doing so. It is designed only to alert you to some of the key issues. The full provisions are long and complex and professional advice should always be sought before action is either taken or refrained from.
VAT registered businesses have been receiving letters from HMRC recommending that an ‘EORI’ number (Economic Operator Registration and Identification number) should be applied for by 29 March 2019, in preparation for Brexit..
In his speech yesterday, Chancellor Philip Hammond demonstrated his commitment to the principle of the Spring Statement as a low-key event, at least in terms of tax and public spending announcements.
With the 5 April rushing towards us and heralding the start of a new income tax year, some changes to bear in mind going forward.
There’s no better time to be nice to staff and customers than at Christmas. But the tax man is less generous than Santa and there are certain clauses you need to be aware of before you start popping £50 notes into envelopes to hand out over mulled wine round the office tree.
See our quick flow chart to check if you are ready for MTD.
House of Fraser’s sale to Sports Direct has brought pre-pack sales back into the spotlight. The process associated with the pre-pack is often criticised, but is also often misunderstood. Why was the sale of House of Fraser managed this way, how does it work and why is it so controversial?