Entrepreneurs' relief – trusts

By Tolley in association with Paul Davies at DWF
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The following Trusts and Inheritance Tax guidance note by Tolley in association with Paul Davies at DWF provides comprehensive and up to date tax information covering:

  • Entrepreneurs' relief – trusts
  • Disposals of shares or securities
  • Disposals of business assets
  • Claiming entrepreneurs' relief
  • Planning for the sale of a company
  • Reorganisations

Capital gains tax rules have historically provided generous relief for business owners who dispose of their business. Until April 2008, relief was provided by way of taper relief. When taper relief was abolished in 2008, entrepreneurs' relief was introduced to preserve the effective rate of capital gains tax on business assets enjoyed by business owners under the taper relief regime.

Despite the similarity in outcome the criteria for claiming entrepreneurs' relief are materially different from the criteria that previously applied to trustees claiming taper relief. Trustees cannot assume that they will benefit from entrepreneurs' relief just because they would have qualified for business asset taper relief in the past.

Broadly speaking, entrepreneurs' relief is a relief that reduces the rate of capital gains tax payable by business owners on a disposal of their business. Trustees are able to claim entrepreneurs' relief on the disposal of business assets held by them in the same manner that individuals can.

Gains that qualify for entrepreneurs' relief are subject to capital gains tax at the rate of 10% whereas other trust gains are subject to tax at the higher capital gains rates of 20% or 28%. The preferential rate of tax means that the relief can potentially be very valuable to a trustee planning a disposal of any assets that potentially qualify as business disposals.

There is no provision that would permit personal representatives to qualify for entrepreneurs' relief.

As noted above the conditions for claiming entrepreneurs' relief are broadly very similar to those applicable to an individual, but there are some significant differences that a trustee specifically has to consider when planning a disposal. These are discussed in greater detail below. Entrepreneurs' relief as it applies to individuals is discussed in the Entrepreneurs' relief guidance note in the Personal Tax module (subscription sensitive).

TCGA 1992, s 169J
Disposals of shares or

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