Entrepreneurs’ relief

By Tolley

(Updated for Budget 2020)

The following Personal Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

Entrepreneurs’ relief
Introduction
Material disposal of business assets
Definition of a ‘trading company’
Associated disposals
Computational aspects
Claims and reporting
Tax planning

Entrepreneurs’ relief is a capital gains tax (CGT) relief available to taxpayers who make a qualifying business disposal (essentially selling or giving away their business). For disposals made on or after 11 March 2020, the relief is available on up to £1m of capital gains for each individual over their lifetime, prior to 11 March 2020 the lifetime limit was £10m.

TCGA 1992, s 169H(1)

Entrepreneur’s relief is a key relief in many business scenarios. To read about it in the context of some common types of transactions, see the following guidance notes:

•Roll-over relief for traders ― restrictions

•Business asset gift relief ― restrictions

•Incorporation of a business

•Tax implications of share sale

•Tax implications of trade and asset sale

•Takeovers

•Loan notes and Qualifying Corporate Bonds (QCBs) and non-QCBs

•Tax treatment of earn-outs and deferred consideration

•Enterprise investment scheme re-investment relief

•Informal winding up

In most instances, entrepreneurs’ relief will be available to:

•sole traders and partners selling / gifting the whole or part of their businesses (furnished holiday lettings are also included)

•company directors and employees holding at least 5% of the ordinary shares and voting rights in a ‘qualifying company’ who sell / gift all or part of their shareholding

Qualifying gains arising from 23 June 2010 are taxed at a flat rate of 10%.

TCGA 1992, s 169N

The computational aspects are discussed below.

When calculating the capital gain or loss on the disposal of land or buildings used in the business, you should consider the HMRC ‘Capital gains tax for land and buildings’ toolkit. The aim of the toolkit is to help identify the key risks for the CGT reporting of disposals of land and buildings.

Also see the Checklist ― entrepreneurs’ relief for issues to consider when considering the application of entrepreneurs’ relief.

Introduction

The conditions for relief explained below are complicated and are summarised in the Flowchart ― summary of conditions for entrepreneurs’ relief.

Firstly, relief is available where there is either:

a material disposal of business assets TCGA 1992 ss 169H 2 a 169I a disposal which is associated with