If you sell or close your business, you may be able to claim Entrepreneurs’ Relief – this means that you only pay 10% Capital Gains Tax on any qualifying profits.
There’s no limit to how many times you can claim Entrepreneurs’ Relief, and you can claim up to £10 million of relief in total during your lifetime.
To claim Entrepreneurs’ Relief you must:
- own at least 5% of the shares in the business for a year
- be a director, partner or employee of the business
To claim Entrepreneurs’ Relief you must have been trading for at least a year.
Full details are on the HMRC Helpsheet HS275
But here are some pitfalls to avoid…….
- Entrepreneurs Tax Relief is not available to companies, so if your company sold the part of its business then that won’t qualify, it’s common for a buyer to want to buy the assets into a New Co but ask that the old company remains alive in case of future claim.
- Significant Non Trading Activity could be a problem too, some business contain investments and if these were more than 20% in terms of turnover, net assets, time spent by directors or profit it could mean that your business is not counted as a trading business
- Less than 5% share ownership this can be an issue where share options are granted and exercised before a sale
- Voting rights of classes of shares or when at an AGM votes are based on a show of hands
- Shares transferred to a non working spouse prior to sale to save tax – to qualify you have to be an employee/officer and hold the shares for a year