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CGT Entrepreneurs' Relief Explained

Small businesses had been promised some sort of concession from the proposed hike in Capital Gains Tax (CGT) from 5% or 10% to 18%. We thought a form of retirement relief would be introduced, but instead a brand new entrepreneurs relief was announced.

Entrepreneurs' relief is available to individuals (or trustees in some circumstances) but not to limited companies.

The new entrepreneurs' relief can apply when you sell part or all of your business, or shares in your own company after 5th April 2008. The capital gain will be cut by 4/9ths leaving 5/9ths taxable at 18%. This makes the effective CGT rate on the gain before allowances just 10% instead of 18%. Prior to 6th April 2008 where full business asset taper relief applied a higher rate taxpayer pays CGT at 10% and a lower rate taxpayer pays CGT at 5% on the same gains.

Any capital losses can also be set-off after the deduction of the entrepreneurs' relief, which was not the case with taper relief.

There are some other tight restrictions to the new entrepreneur relief:

1. You must be disposing of a material part or all of your business. This includes:
   • the sale of the whole business;
   • the sale of a partnership interest;
   • the sale of shares in a qualifying company where the shareholder must own at least 5% of the ordinary voting shares and have been an officer or employee of the company;
   If assets are sold without the sale of the business or cessation of the trade, they will not qualify for the relief. For example, if a farmer was selling one field from their farm, entrepreneurs' relief would not apply.
2. You must have held the assets or shares for at least one year before the sale.
3. The business must fall under the definition of a trading business, which means a property letting business will not qualify. Furnished holiday lettings do qualify.
4. The relief only applies to the first £1 million of qualifying lifetime gains made after 5 April 2008. Gains in excess of £1 million, or which do not qualify for other reasons will be taxed at 18%.

Where the conditions are met it may also be possible to claim relief where gains are deferred as a result of Enterprise Investment Scheme or Venture Capital Trust investments.

Where a material disposal relates to a sale of shares or a partnership share, the person disposing is also able to claim relief against any gains on the disposal of an asset used in the business. This later disposal can happen within 3 years of the original disposal. The relief is restricted if rent is charged on the property.

The maximum tax you can save by claiming the relief is £80,000.

How we can help you
We can assist you with the planning of entrepreneurs' relief to maximum effect and assisting in any disputes over the amount of entrepreneur relief available.

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