How does Entrepreneurs’ Relief work?

Entrepreneurs’ Relief is a Capital Gains Tax concession on qualifying business disposals, providing a 10% CGT rate on business sales.

The relief is subject up to a maximum lifetime allowance, which stood at £1m when entrepreneurs relief was first introduced. The lifetime allowance doubled to £2m for qualifying assets as a result of changes made in the March 2010 Budget. This was further extended to £5m during the ‘Emergency Budget”, with effect from 23rd June 2010. In the March 2011 Budget the lifetime allowance was increased to £10m from April 6, 2011.

A flat CGT rate of 18% applies in other cases, from 6th April 2008 (and a new 28% rate for higher rate taxpayers from 23rd June 2010).

Following the abolition of the CGT Taper Relief scheme from 6th April 2008, the Government initially intended to enforce a new flat 18% rate on capital gains.

This 10% rate concession is a result of lobbying by business organisations who claimed that an 80% increase in CGT rate on business disposals was an anti-entrepreneurial measure.

There are a number of conditions which apply for business owners who wish to use Entrepreneurs’ Relief. Here are some of the key conditions:

  • A business disposal can apply to the whole business, or merely a part of it.
  • Entrepreneurs’ relief only applies to individual taxpayers.
  • The relief is not retrospective, and won’t include past disposals.
  • Relief can apply to business shares, providing the claimant owns at least 5% of the company (and has voting rights), and is an officer or employee of the company.

Entrepreneurs relief can be claimed any number of times from 6th April 2008, up to the lifetime limit of £10 million (effective from April 6, 2011). Capital gains tax of 18% (or 28% for higher rate taxpayers from 23rd June 2010) will apply on amounts greater than this limit.

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