Entrepreneurs’ Relief – saved by Sunak Budget 2020

Posted on: March 11th, 2020

In amongst a number of tax considerations, it had been anticipated that Chancellor Rishi Sunak might consider scrapping Entrepreneurs’ Relief today during the 2020 Budget. Instead he lowered the lifetime limit, recognising the important incentive for business.

Hand in hand with any business disposal comes the matter of Capital Gains Tax (CGT). On the disposal of all or part of a sole trading or partnership business, a CGT rate of 10% is applied to any gain made where the owners’ taxable income falls below the basic rate bank upper limit and 20% on the balance.

The aspiring business people attending the programme may be entitled to a further relief which caps CGT on the balance at 10% known as Entrepreneurs’ Relief (ER).

Subject to certain specific criteria, ER can apply to gains made on disposals by individuals of the following:

Shares in or securities of a trading company

  • The individual making the disposal must own at least 5% of ordinary share capital.
  • These shares or securities must carry voting rights.
  • There is a minimum period of ownership of the shares of at least one year prior to the disposal.
  • The individual must be an officer or employee of the company at the time of the disposal and during the one year ownership of the shares prior to the disposal.
  • The 5% minimum ownership requirement is not required where the disposal is of shares acquired after 5 April 2013 under Enterprise Management Scheme (EMI) options.
  • An investment business will not qualify.

The transfer of the whole or part of a business

  • The disposal must be made by a sole trader or business partner who owned the business for a minimum period of one year prior to sale.

Assets in use on the cessation of a business

  • The business must have been owned by the individual throughout the period ending in date of disposal; and
  • The business ceased trading within 3 years ending in date of disposal.

Associated disposals of personal assets

  • Assets lent to the business can also qualify for ER provided at least 5% of your shares or business partnership are sold and the loan period was at least one year at the time of disposal.

If you are a trustee selling assets that satisfy the criteria above, you may also qualify.

Entrepreneurs’ Relief is not given automatically, but must be claimed either through your Self Assessment Tax Return or by completing Section A of the ER Helpsheet.

There is no limit on how many times you may claim Entrepreneurs’ Relief, however, following the 2020 Budget there is a now a lower lifetime cap on the relief of £1 million (having been reduced from the previous cap of £10 million.

ER is a complex but vital tax saving tool, the nuances of which are beyond the scope of this article. However, if you are contemplating the sale of your business, it can still provide you with a tax saving.

For more information about Entrepreneurs’ Relief and what this means for you, please fill in the enquiry form below.