Entrepreneurs' Relief (ER) can be valuable relief when selling your business, your shares in a trading company or your interest in a trading partnership. Where ER is available, Capital Gains Tax (CGT) of 10% is payable. This rate applies to qualifying lifetime gains of up to £10 million.
However, it is important to remember that there are qualifying conditions that must be met to ensure you are eligible to benefit from the lower 10% rate.
If you are selling all or part of your business, then both of the following must apply in order to qualify for relief:
- You must be a sole trader or business partner,
- You must have owned the business for at least 2 years before the date you sell it.
If you are selling shares in the business you must be an office holder or employee of the company, own at least 5% of the company and have at least 5% of the voting rights for at least 2 years before you sell your shares. You must also be entitled to at least 5% of either the profits that are available for distribution and assets on winding up the company or the disposal proceeds if the company is sold.
The company must also be a trading company or the holding company of a trading group. If the number of shares you hold falls below 5%, because the company has issued more shares, you may still be able to claim ER. The rules are different if your shares came from certain Enterprise Management Incentive (EMI) schemes.
There is also a sister relief called Investor’s Relief which has a separate £10 million lifetime cap. This is useful for investors who do not meet the officer or employee requirement for ER.