One of the most eagerly anticipated announcements in the most recent Budget was the Government’s position regarding Entrepreneurs’ Relief. Mr Sunak described Entrepreneurs’ Relief as ‘expensive, ineffective and unfair’ with three quarters of the relief going to merely five thousand people. As a consequence, Entrepreneurs’ Relief has been scaled back from a £10 million lifetime allowance to a £1 million lifetime allowance.
Now further changes to the scheme have been announced, with Entrepreneurs’ Relief becoming Business Asset Disposal Relief from 6 April 2020.
Those eligible may be able to pay less Capital Gains Tax when they sell all or part of their business, as under the scheme you’ll pay tax at 10% on all gains on qualifying assets.
If you’re selling all or part of your business, in order to qualify for relief, you need to be a sole trader or business partner and have owner the business for at least two years.
The same conditions apply if you’re closing your business instead. You must also dispose of your business assets within three years to qualify for relief.
Alternatively, If you’re selling shares or securities, to qualify for relief you must be an employee or office holder of the company (or one in the same group) and the company’s main activities must be in trading (rather than non-trading activities like investment) - or it’s the holding company of a trading group. Both of the above must have applied for at least two years, up to the date you sell your shares.
There are also other rules depending on whether or not the shares are from an Enterprise Management Incentive (EMI).
If you’re selling assets you lent to the business then to qualify you must have sold at least 5% of your part of a business partnership or your shares in a personal company and you must have owned the assets but let your business partnership or personal company use them for at least one year up to the date you sold your business or shares - or the date the business closed
You may also qualify for relief if you’re a trustee selling assets held in the trust.
For more information visit https://www.gov.uk/business-asset-disposal-relief or speak to your accountant.