Entrepreneurs relief means you’ll pay tax at 10% on all gains on qualifying assets. It reduces the amount of Capital gains Tax (CGT) payable when you dispose of shares in all or part of your business or liquidate your company.
If you are selling all parts of your business, to qualify for relief, both of the following must apply:
The same conditions apply if you’re closing your business. You must also dispose of your business assets within 3 years to qualify for relief.
If you’re selling shares or securities or liquidating your limited company, to qualify, both of the following must apply for at least 2 years before you sell your shares:
If the company stops being a trading company, you can still qualify for relief if you sell your shares within 3 years.
If you’re selling assets you lent to the business, to qualify, both of the following must apply:
You’ll pay 28% tax on gains made before 6 April 2016 that do not qualify for Entrepreneurs’ Relief.
You can use your tax-free allowance against the gains that would be charged at the highest rates.
If you're a basic rate tax payer, you need to work out the tax rate you’ll pay on gains that are not eligible for Entrepreneurs’ Relief.
- Work out how much taxable income you have - deduct your Personal allowance and any other Income tax relief you’re entitled to.
- Deduct this amount from the basic rate tax band for the year you made the gains.
- This gives you the amount of basic rate band you can use against your gains.
- Work out your total taxable gain.
- Use your basic rate band first against any gains eligible for Entrepreneurs’ Relief. You’ll pay 10% tax on these.
- Use any remaining basic rate band against your other gains. You’ll pay 18% on gains made before 6 April 2016. For gains made after this you’ll pay 18% on gains made on residential property and 10% on gains from all other chargeable assets.
- For gains above the basic rate band you’ll pay 28% on gains made before 6 April 2016. For gains made after this you’ll pay 28% on gains made on residential property and 20% on gains from all other chargeable assets.
- You can use your tax-free allowance against the gains that would be charged at the highest rates.
You can claim Entrepreneurs’ Relief either through your Self-Assessment tax Return. However seeking advice from an accountant is highly recommended. Or by filling in Section A of the Entrepreneurs relief help sheet.
Deadlines for claiming Entrepreneurs’ Relief
To avoid missing the boat, you need to claim Entrepreneurs’ Relief by the first anniversary of the 31st January following the tax year of the disposal of shares:
|Tax year ended||Deadline to claim|
|5th April 2020 (2019/20 tax year)||31st January 2022|
|5th April 2019 (2018/19 tax year)||31st January 2021|
|5th April 2018 (2017/18 tax year)||31st January 2020|
There’s no limit to how many times you can claim Entrepreneurs’ Relief, and you can claim up to £10 million of relief during your lifetime. Also from 6 April 2016, if you have wound up your business using Members Voluntary Liquidation (MVL), you cannot open or run a business involved in a similar trade or activity for the next 2 years, if one the motive was to receive a tax advantage or reduction in tax liability. In this case the reserves distributed can be subject to dividend tax as opposed to CGT.