If you’re looking to sell your business or business assets, you’re probably trying to work out your exit strategy. What you might not know is that you may be eligible for Entrepreneurs’ Relief (ER). First set up in 2008, it is a way for the Government to promote the start-up and growth of businesses. Its most important function is that it provides a reduced rate of 10% of Capital Gains tax when the business is sold/part sold.
Essentially, Entrepreneurs’ Relief is a really good way for business owners to get a great return on their investment. If you’re looking to sell your business and want to find out how to save up to £1 million in capital gains tax, you’re in the right place.
Who qualifies for ER?
You’ll be in one of two groups:
- A sole trader or partner selling all or part of your business
- A company director, employee or officer holding at least 5% of the shares in a trading business
Although both the sale of shares and the disposal of business assets can qualify, it’s important to remember you must have held the business/assets for over a year.
You should also be aware that relief is only available when there is either:
- A material disposal of business assets
- A disposal which is associated with a material disposal
- A disposal of trust business assets
In general, this means that for a disposal to be ‘material’, it needs to be the whole or a clearly definable asset or part of the business.
Only selling part of your business?
The part you want to sell should be an ‘identifiable part of the business which is separately definable’. For example, if you owned a franchise of restaurants and wanted to sell one, it would be an independent part of the business which is ‘separately definable’, so you would be eligible for ER.
What are ‘relevant business assets’?
Since Entrepreneurs’ Relief is only available for the disposal of ‘relevant business assets’, it’s important to understand what this entails. Most simply, they are assets used for the purpose of the business (as defined by HMRC). So, for example, if you had a printing company, a relevant business asset would be its printers.
It’s also definitely worth knowing that you can claim ER for assets purchased during the year if they were bought for the business to use.
Is my company trading?
According to HMRC, at least 20% of your business needs to be classed as trading if you want to claim ER. This means that you must be really careful with any investing activity because this could compromise your opportunity for ER.
The lifetime ER maximum is £10 million, and you can claim relief multiple times up to this limit. Keep in mind though that any gains exceeding this threshold will be charged at 10/20%. Also, be aware that once you have claimed your lifetime limit, you won’t be entitled to any more relief on any new disposals.
How we can help
Unfortunately, Entrepreneurs’ Relief can be very complex, but that’s where we can help. Our specialist Tax M&A Team will be able to answer your questions and give you the advice you need. Please get in touch using the contact form below.