Capital Gains Tax (CGT) is a tax levied on the disposal of all assets, including the sale of a business. The tax is payable on the actual gain made from the sale, not the actual sale amount. Entrepreneurs’ relief is a tax relief on CGT that lets you sell all or part of your business and pay only 10 per cent capitals gains tax (CGT) on the profits you’ve made, as opposed to the normal rate of 20%.
unexpectedly, in the very recent Spring
Budget there were major changes to Entrepreneurs Relief on Capital Gains
charged on the sale of a business.
the lifetime limit previously set at £10m per entrepreneur, was cut
significantly to £1m.
The new lower
limit applies to all gains during a persons lifetime, and once the £1m
threshold is breached, higher rate taxpayers will pay 20% CGT on any further
gains over that limit.
This also took
immediate effect as from 11th March, meaning that any sales not
completed by that date will now benefit only from the reduced relief.
We could argue
for ever on whether this change is right or wrong, but the impetus was mainly
for the government to save very significant amounts of tax relief to assist
with their spending plans.
relief has also been criticised for several years for disproportionately
rewarding a small number of people, and the cut is designed to rebalance that,
whilst continuing to offer an incentive for new entrepreneurs and small
tax remains largely unchanged, the principal qualifications being as follows.
Both of the following must apply for at least 2 years up
to the date you sell your business:
a sole trader or business partner
owned the business for at least 2 years.
of the following must also apply for at least 2 years up to the date you sell:
- you’re an employee or office holder of the company (or one in the same group)
- the company’s main activities are in trading (not non-trading) – or it’s the holding company of a trading group.
Additionally, for at least 2 years before you
sell your shares, the business must be a ‘personal company’, meaning that you
have at least 5% of both:
You must also be entitled
to at least 5% of either:
that are available for distribution and assets on winding up the company
proceeds if the company is sold
the business must be a going concern, in other words commercially trading and
There are many
other rules governing Entrepreneurs Relief, some of which are complex depending
on individual circumstances, so it is as always essential to seek specialist
tax advice as part of planning your sale.
30 March 2020