If you hope to qualify for Entrepreneurs’ Relief, it is vital that you plan ahead according to Cassandra Graham, part of the tax team at Bates Weston. Cassandra has been looking at HMRC’s 2017-2018 statistics for Capital Gains Tax and one of the bullet points on Entrepreneurs’Relief (ER) caught her attention.
- “27% of the total CGT in 2017-18 came from disposals qualifying for ER, which had a value of £2.4 billion.”
The document goes on to say that although the total number of taxpayers claiming Entrepreneurs’ Relief had increased by 6% on the previous year, it was still less than the number of ER taxpayers in 2015 -16. Cassandra believes that the number of taxpayers claiming ER is surprisingly low and stresses the importance of planning ahead, by at least 2 years to maximise your chances of claiming this valuable relief.
Entrepreneurs Relief reduces the tax on qualifying capital gains on business assets to 10% (from the usual rate of 20%) and most business owners, rightly or wrongly, expect to get the relief when they sell their business. However, the devil is in the detail and there are numerous instances of business owners being denied the relief due to poor planning prior to sale.
Last year’s budget brought changes to the relief:
- The minimum qualifying holding period of the asset being sold has been increased from one year to two years and
- A further 5% condition which states that either the individual must be entitled to at least 5% of the distributable profits and on a winding up be entitled to at least 5% of the assets or in the event of a disposal of the whole of the ordinary share capital of the company, the individual would be entitled to at least 5% of the proceeds
These changes and our experience with clients who have missed out on the relief, make it vital to involve high quality tax planners as soon as you consider sale as a possible option. If you need our help with this, please do get in touch.