What is Entrepreneurs’ Relief when selling shares in your business?

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With Entrepreneurs’ Relief, you can decrease the amount of Capital Gains Tax payable whenever you decide to sell or distribute part or all of your business.

As a result, you will be provided with a tax rate of 10% on the cost of the disposal. There is no limit on the number of times that you can claim. In fact, you are allowed to claim up to £1 million of relief throughout your lifetime. Before April 6, 2020, the lifetime limit was set at £10 million. The same rules will be used no matter what is the rate of the income tax that you pay.

Can You Claim For An Entrepreneurs’ Relief?

When claiming Entrepreneurs Relief, there is a certain qualifying period. This means that the share disposal must occur within two years of the end of a given tax year.

In order to claim for an Entrepreneurs Relief, there are some conditions that you have to meet.

1. The person selling the shares must be an owner of at least 5% of the regular share capital of the company. This can allow them to have at least 5% of the votes, 5% of the net assets once everything is wrapped up, and 5% of the company’s distributable earnings.

2. Also, it is required that the person who will sell the shares must be an employee or an officer of the company. Consequently, all the employment conditions must be satisfied at least 24 months prior to the disposal.

3. It is also required that the company must have done some trading at least 24 months before the disposal will occur.

In case the company decides to terminate trading and dissolve, then there is still a  chance that the relief can be claimed as long as the following conditions are met:

The disposal of any assets in the company should not be taxed as an income but rather as a capital distribution.

When the company decides to stop trading, then the disposal should take place within three years.

It is also necessary that the three qualifying conditions mentioned above should be fulfilled within 24 months before the company decides to stop trading.

When Is The Deadline For Claiming Entrepreneurs’ Relief?

If you want to avoid missing the deadline, then you have to make your claim for Entrepreneurs’ Relief on the first anniversary of January 31st succeeding the tax year of the distribution of shares:

For tax year ended April 5, 2019 (2018/19 tax year), the deadline to claim is on January 31, 2021. For tax year ended April 5, 2020 (2019/20 tax year), the deadline for claiming will be on January 31, 2022. And finally for tax year ended April 5, 2021 (2020/21 tax year), the claim should be made not later than January 31, 2023.

How Can I Claim For Entrepreneurs’ Relief?

The claim can be made on the annual Self Assessment return particularly in the supplementary section of the Capital Gains Summary. However, before making a claim it is highly recommended that you should seek advice from an accountant.

Bear in mind that other Entrepreneurs’ Relief rules may apply if you are selling other types of assets aside from shares. It would be much better if you could speak with an accountant to get some advice in this particular area.

Finally, this article only offers general information. If you want some specific advice for your personal circumstances, then you should talk to an accountant. If you don’t have an accountant, then you can speak to us, so we will know how we can help you.

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