Q. I understand that the rules for Entrepreneurs’ relief changed recently. I am looking to sell my limited company business, will I still qualify for this relief?
A. Entrepreneurs’ relief (ER) is a valuable tax relief available to business owners who meet the qualifying conditions which can reduce the capital gains tax rate on the sale of a business to 10%, up to a lifetime maximum of £10 million.
The rules surrounding the relief are complex and there are many pitfalls which can result in the conditions being failed. The qualifying conditions for ER were changed for disposals made on or after the 29th October 2018.
ER is available on the disposal of shares in a ‘personal company’. Prior to the 28th October 2018, the claimant was broadly required to hold at least a 5% interest in a trading company for a 12 month period prior to the disposal to qualify for ER.
However, for disposals taking place after 28th October 2018, for the claimant to qualify for ER, they are still required to hold a 5% share in the company, however they must also be entitled to 5% interest in the distributable profits and net assets of the company on winding up.
A further change was made for disposals made on or after 6th April 2019. Whereas previously the conditions to qualify for ER only had to be satisfied for a 12 month period, for disposals on or after this date, the qualifying conditions must be met for a 24 month period.
ER is potentially available in circumstances where the qualifying business has ceased trading and the disposal of assets takes place within 3 years of cessation, provided the qualifying conditions are met. In this respect, where a business ceased prior to 29th October 2018, but the disposal does not take place until on or after the 6th April 2019, the 12 month ownership period will continue to apply.
There are a number of factors that should be considered in relation the sale of a business and the availability of entrepreneurs’ relief, and detailed advice, taking into account individual circumstances, should always be obtained.
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