Following the creation of a new flat 18% CGT rate during Budget 2008, the Chancellor announced the introduction of entrepreneurs’ relief which was to compensate business owners who would have paid a lower rate under the previous taper relief rules on business disposals.
The relief allowed business owners to pay an effective 10% capital gains tax rate on business disposals up to a lifetime ‘allowance’ of £1m. In the first 2010 Budget, Alistair Darling raised the lifetime limit to £2m. This was further extended to £5m in the ‘Emergency Budget’ of 2010, effective from 23rd June 2010, and further increased to £10m in the Budget of 2011, effective from April 6, 2011.
Are you eligible to claim entrepreneurs relief?
In order to claim entrepreneurs’ relief, several conditions must be met:
1. The relief can only be claimed by individuals (sole traders, partnerships, of if you own shares in your limited company). Companies cannot claim relief.
2. You must have owned the business for 12 months before claiming the relief, or for 12 months before the date the business stopped trading.
3. You can claim relief on proceeds from a partial or full sale of a business, shares in a company, or on the value of any business assets remaining after the company has ceased trading.
4. You can claim as many times as you like, although entrepreneurs’ relief is subject to a lifetime allowance. From, April 6, 2011, the lifetime allowance for entrepreneurs relief is £10m. You will may the standard CGT rate on any proceeds beyond this limit.
5. Entrepreneurs’ relief reduces the gain liable to CGT by four-ninths, and then the standard rate of 18% (28% for higher rate taxpayers from 23/6/2010) is applied, giving an effective rate of 10% on any qualifying business sale proceeds.
You can find out more about the conditions you need to meet in the HMRC helpsheet here (PDF document).