Entrepreneurs Tax Relief

Entrepreneurs tax relief is a scheme created by the then government in the 2008 budget, to compensate business owners, following the increase in Capital Gains Tax (“CGT”) to a flat rate of 18%, where they would otherwise have only paid 10% tax on the sale of their business.

When introduced, the relief available to entrepreneurs, allowed the 10% tax rate to be paid on business disposals up to a value of £1 million. This limit was then increased to £2 million in the last governments final budget effective from 6th April this year (2010).

With the announcement in June’s emergency budget, that CGT was to increase to 28% on 23June 2010, the threshold for entrepreneurs tax relief, was further increased to a lifetime allowance of £5 million.

The relief can only be claimed by an individual person, who is either a sole trader, in partnership or a holder of shares in their own company. The relief cannot be claimed by corporate entities, although certain trustees are able to access the relief.
The relief can be claimed on all or part of a business, or shares in a company, or business assets after the disposal or cessation of trading of the business.
The claimant must have owned the business for at least a year prior to the business disposal, or on which the business ceased trading.
There is no time limit to the claims an individual can make for entrepreneurs tax relief, however any gains in excess of the £5m lifetime allowance will be taxable at the standard 18% CGT rate for basic rate tax payer and at 28% for higher rate taxpayers (from 23rd June 2010).

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