When you sell certain business assets, you could qualify for entrepreneurs’ relief. Entrepreneurs’ relief is there to help individuals reduce their capital gains tax for selling certain business assets in the year before, or day when their business ceases trading.
How do you claim it?
A claim for entrepreneurs’ relief must be made before the anniversary of the 31st of January following end of the tax year in which the asset was sold. For example if you made the sale in the tax year ending on April 5th 2013, you would need to claim the relief before the 31st of January 2015.
The claim must also be made in writing to H. M. Revenue and Customs. Alternatively you can claim it on your self assessment tax return for the year. For a claim in writing, you can use the form at the bottom of this information document.
How does the relief work?
Unlike other types of tax relief, you are given a lifetime allowance for entrepreneurs’ relief. The current allowance from 6th April 2011 is £10 million. This means you can claim the relief on up to £10 million of capital gains throughout your lifetime.
The effect of claiming the relief is that the percentage used to calculate the CGT on your gain will be reduced to 10%. This significantly reduces the amount of tax due on the gain.
What assets can you claim the relief on?
Only certain business assets can have entrepreneurs’ relief claimed on them, these are:
- Assets that are used in the business and part of the sale (of part or all) of the business, this includes goodwill and business premises, but not shares.
- Assets that were in use for your business but sold within three years of the business ceasing, this does not include shares or assets held as investments.
- Shares of your company, if sold when the company is still trading or within three years of when the company ceased trading, or
- Assets you own personally but are used in your business, providing that they are sold as part of you selling shares in your company or your stake in a partnership.
Claiming entrepreneurs’ relief is only possible when it is your personal company/business that you are selling assets from. This means you own at least five percent of the ordinary share capital and that you get at least a five percent voting right from it.
You can find more information and scenarios for entrepreneurs’ relief here. If you have any questions or would like any extra advice on the above, please do not hesitate to contact us.