Entrepreneurs’ relief is one of the most attractive tax benefits that business founders and owners have available to them, giving a capital gains tax rate on business disposals of just ten per cent – the lowest currently available. However, there are some steps which need to be fulfilled in order for you to benefit from ER. We’ve collected our top five tips to securing your entrepreneurs’ relief and reaping the rewards you deserve.
Ensure what you are disposing of is eligible
Entrepreneurs’ relief is only offered to taxpayers who are disposing of a business, part of a business, or a business asset. You need to be certain that whatever you are selling fits into one of these categories, otherwise your claim for entrepreneurs’ relief could be refused. If you are selling property, for example, you need to be able to prove that it amounts to a business or is used for trade.
Get your timing right
The time both before and after your entrepreneurs’ relief claim are important. The conditions for entrepreneurs’ relief to be granted need to have been met for at least twelve months prior to disposal and making your claim. In addition, if your claim is related to business assets, then the disposal needs to have occurred within three years of ceasing trade or partnership.
Don’t assume that you qualify just because your business partner does
Every person involved in a disposal needs to meet all the criteria in their own right. So if there are multiple individuals selling their part of a business or business assets, just because one of them qualifies for entrepreneurs’ relief doesn’t mean that all of them do. Make sure that you yourself are ticking all the boxes, or you might miss out where others make gains.
Keep an eye on your cash…
Any cash that is neither a company’s working capital nor set aside specifically for either capital expenditure or business investments in the future, can work against you. If it amounts to a substantial non-business asset it could cost you your entrepreneurs’ relief.
Entrepreneurs’ relief is only eligible on shares that give you five per cent or more of both the voting rights and the ordinary share capital of a company. Once you go above five per cent, other forms of shares (such as preference shares and non-qualifying corporate bonds) also qualify for entrepreneurs’ relief.