5 Pitfalls to avoid with Entrepreneurs Tax Relief 1


with computer

If you sell or close your business, you may be able to claim Entrepreneurs’ Relief – this means that you only pay 10% Capital Gains Tax on any qualifying profits.

There’s no limit to how many times you can claim Entrepreneurs’ Relief, and you can claim up to £10 million of relief in total during your lifetime.

Companies

To claim Entrepreneurs’ Relief you must:

  • own at least 5% of the shares in the business for a year
  • be a director, partner or employee of the business

Sole traders

To claim Entrepreneurs’ Relief you must have been trading for at least a year.

Full details are on the HMRC Helpsheet HS275

But here are some pitfalls to avoid…….

  1. Entrepreneurs Tax Relief is not available to companies, so if your company sold the part of its business then that won’t qualify, it’s common for a buyer to want to buy the assets into a New Co but ask that the old company remains alive in case of future claim.
  2. Significant Non Trading Activity could be a problem too, some business contain investments and if these were more than 20% in terms of turnover, net assets, time spent by directors or profit it could mean that your business is not counted as a trading business
  3. Less than 5% share ownership this can be an issue where share options are granted and exercised before a sale
  4. Voting rights of classes of shares or when at an AGM votes are based on a show of hands
  5. Shares transferred to a non working spouse prior to sale to save tax – to qualify you have to be an employee/officer and hold the shares for a year

steve@bicknells.net

One comment

  1. Pingback: Can a Property Flipper or Developer use Entrepreneurs Relief? « Steve J Bicknell

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