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When does Entrepreneurs' Relief apply? What is the rate of Entrepreneurs' Relief? How to claim Entrepreneurs' Relief.  

A FREEVIEW guide to this valuable business disposal relief.

Subscribers to this site: see your detailed Subscriber guide to Entrepreneurs' Relief

and also our Virtual Tax Partner toolkits

 

At a glance

At a glance

Entrepreneurs' Relief (ER) is a Capital Gains Tax (CGT) relief which reduces the rate of tax paid on the disposal of business assets where the disposal proceeds are high enough to take you into the higher tax bands.

It applies to disposals of:

ER

The effect of ER

Restrictions

How ER works 

Chargeable gains covered by the ER are taxed at an effective tax rate of 10%.

The amount of ER given depends on the amount of the individual's ER Lifetime Allowance after taking previous disposals into account at the date of the disposal.

The Lifetime Allowance is as follows:

The 'mechanics' of this relief have changed over the years, if you have made several disposals in your lifetime, this can make the calculation of your lifetime allowance tricky.

For example

John owns a sole trade and four companies and he disposes of his business and his shareholdings between 2009/10 and 2018/19 as follows.

He sold his sole trade and business premises making a £2 million capital gain in September 2009. The disposal qualified for ER and his gain was taxed as follows:

2009/10 - First disposal

£

(£1,000,000 x 5/9ths) x 18% =

100,000

£1,000,000 x 18% =

180,000

CGT due (ignoring annual exemption)

£280,000

In May 2010 he sells all his shares in his first company, the £2million gain qualifies for ER. The Lifetime Allowance increased to £2 million on 6 April and so he now has £1 million of ER available to use up as follows:

2010/11 -Second disposal

£

(£1,000,000 x 5/9ths) x 18% =

100,000

£1,000,000 x 18% =

180,000

CGT due (ignoring annual exemption)

£280,000

In July 2010 he sells his second company making a £5 million gain which again qualifies for ER. The Lifetime Allowance increased to £5 million on 23 June and so he now has £3 million of ER available to use up as follows:

2010/11 - Third disposal

£

£3,000,000 x 10% =

300,000

£2,000,000 x 28%* =

360,000

CGT due (ignoring annual exemption)

660,000

*CGT rate increases for higher rate taxpayers from 23 June 2010

In May 2018 he decides to retire and he sells his remaining company making a £6 million gain which again qualifies for ER. The Lifetime Allowance increased to £10 million on 6 April 2011, as he has used up £5 million of his Lifetime Allowance on his previous disposals only £5 million qualifies for relief.

2018/19 - Fourth disposal

£

£5,000,000 x 10% =

500,000

£1,000,000 x 28%* =

280,000

CGT due (ignoring annual exemption)

780,000


Notes

Different forms of ER

ER applies to a 'material disposal' of business assets, there are separate rules for the different classes of asset. These comprise:

Different forms of ER: Applies to:

Disposal of a business or part of a business

Sole traders or partners: S169I(2)(a) TCGA 1992

Disposal of the assets of a business following its cessation

Sole traders or partnerships: s.169I(2)(b)
Disposal of shares or securities in a company Officer or employee shareholders
Disposal of a joint venture interest Joint venture officer or employee shareholders
Disposal of trust business assets Trustees
Disposal associated with a material disposal Shareholders or partners
Disposal of shares or securities in a company (Investors' Relief) Investor shareholders (not officers or employers)

 

Try the Virtual Tax Partner© Toolkits for Entrepreneurs' Relief

These online tools are designed to work through the complex rules in minutes, they cover:

Entrepreneurs' Relief: business and asset disposals (sole traders)
This toolkit covers around 50 different permutations of the rules covering disposals made by an individual.

Entrepreneurs' Relief: share disposals
This toolkit covers share disposals and share disposals following incorporation and all the different permutations of the relief for shares for disposals.

 

 

What's new?

The rules for Entrepreneurs' Relief have undergone multiple changes over the years, for full details see Subscriber Guide: Entrepreneurs' Relief.

For the current version of the legislation see Section 169H to 169V TCGA 1992.

Renaming of the relief

Draft Finance Bill 2020 includes provisions to rename the relief 'Business Asset Disposal Relief' from April 2020.

Budget 2020 proposals

Budget 2018 changes

Changes to the definition of personal company 

For disposals on or after 29 October 2018:

In addition to the existing 'personal company' condition requiring 5% of share capital and voting rights, the claimant must, throughout the relevant period, have at least:

These changes do not affect EMI share options as there is no requirement for the personal company tests to be met by shareholdings acquired under an EMI scheme.

See ER: a disposal of shares or securities in a company

Qualifying period extends from one year to two

For disposals on or after 6 April 2019

The minimum period throughout which certain conditions must be met to be eligible for relief is extended from one year to two years.

See ER: a disposal of securities in a company

Protecting ER on diluted shareholdings:

Investors' Relief

Transactions in Securities (TiS)

HMRC can use the Transactions In Securities (TiS) anti-avoidance rules to counteract an income tax advantage for a shareholder in certain circumstances. When a counteraction is made an otherwise capital receipt is taxed as income and ER does not apply.

From 6 April 2016 the definition of a TiS is extended to include:

See Transactions in Securities.

Goodwill on Incorporation

Changes in 2014/15

Disposals made on or after 18 March 2015

Disposals made on or after 3 December 2014

Finance (No. 2) Act 2010 (FA (2) 2010):

Restriction on QCBs

From April 2010 ER was restricted so that it no longer applied to gains deferred using Qualifying Corporate Bonds (QCBs).