Business owners considering selling may need to bring their sale forward

As the general election approaches, there are increasing concerns that Entrepreneurs’ Relief could be vulnerable to change or even abolition.

Entrepreneurs’ Relief was introduced under the Finance Act 2008 with the aim of promoting entrepreneurship and innovation that fuel the economy. It allows those disposing of qualifying business assets to pay a reduced capital gains tax rate of 10% on a lifetime limit of £10m rather than the normal rate of 18% or 28%.

Entrepreneurs’ Relief is one of the most attractive regimes in the European Union. However, its success has led some to question if government can continue to finance it.

According to a report issued by the National Audit Office in November 2014, Entrepreneurs’ Relief has cost the Treasury £2bn a year more than expected.

This then brings into sharp focus the implications and cost if you are considering selling your business in the near future. And consideration might need to be given to bringing this forward. Even if no changes are forthcoming it is always best to consider your options and take advice as many business sales take time and certain steps need to be taken in advance in order to maximise tax reliefs.

It will be disappointing and short sighted if this relief is abolished or diminished. In the current climate of clamping down on aggressive tax schemes, Entrepreneurs’ Relief is a breath of fresh air as the 10% rate has reduced the incentive for tax payers to seek to push the boundaries with complex tax avoidance plans.Increases to the rate may indeed lower tax revenue and increase tax avoidance activity once again.

Currently eligibility criteria:
Entrepreneurs' relief applies to a disposal of shares in a trading company provided that, during the period 12 months prior to the disposal:

  • the company is a trading company (or the holding company of a trading group);
  • the relevant individual holds at least 5% of the company's ordinary shares; and
  • the relevant individual is a director or employee of the company.

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