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Selling your business – 10% tax may apply to sale

Source: HM Revenue & Customs | | 12/12/2017

Entrepreneurs' relief applies to the sale of a business, shares in a trading company or an individual’s interest in a trading partnership. Where entrepreneurs' relief is available CGT of 10% is payable rather than the normal main rate of 20%. This can significantly reduce the amount of CGT due and there is a £10 million lifetime limit.

The lifetime limit means that individuals can qualify for the relief more than once, subject to the overriding condition that 20% CGT will be charged once the total amount of qualifying capital gains exceed £10 million.

The relief is available to individuals as well as some trustees of settlements on the disposal (usually sale) of all or part of a business or the sale of shares or securities in a trading company.

To qualify the individual should be either an officer or employee of the company and own at least 5% of the company and have at least 5% of the voting rights. There are also other qualifying conditions that must be met in order to qualify for the relief.

Entrepreneurs' relief is an important and valuable tax relief for many business owners. There is also a sister relief called investor’s relief which has a separate £10 million lifetime cap. This is useful for investors who do not meet the officer or employee requirement for entrepreneurs' relief.

Planning note

Entrepreneurs' relief is not available to companies or personal representatives of deceased persons or in relation to a trust where the entire trust is a discretionary settlement. The limit applies to all qualifying gains, whatever the year in which they arose.

Before embarking on any sale, it is important to check what reliefs will apply. We would be happy to help you review any planned disposals and help ensure that you pay as little tax as possible.

 

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