Entrepreneurs’ Tax Relief : Everything you Need to Know

entrepreneur's tax relief

If you are an entrepreneur who is looking for ways to reduce tax bills, we have covered something for you that will help you a lot in this regard. Have you heard about entrepreneur tax relief yet or not? Well in a smile put it refers to a kind of tax relief that will make it possible for you to pay only 10 percent of capital gains tax. The rest of the assets of your business will be taken care of by the entrepreneur’s tax relief. However, your profit limit must be approaching £10m or less but not more than this.

Imagine a person who is paying the higher tax rates on his profits which is 20 percent and the relief can bring it to half as in 10 percent. This explains that an amount of £1m can be saved using this tax relief. However, before you plan to claim, there are certain things you must know before. This comprehensive guide has covered everything you require to know and this involves the discussion of what is £1m, does it cover the business assets and shares, what is the eligibility criteria to make a claim, is it possible for couples to claim.


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What is an Entrepreneur’s Tax Relief?

The entrepreneur’s tax relief works as an allowance that will reduce the rate of paying the CGT. The business will have to pay the reduced rate of 10% when the business is disposed of. This procedure is not only related to the selling of businesses, however, trade cessation and business winding up can also apply. But there are certain circumstances that will allow this scenario. The details are outlined below:

  1. There must be a genuine commercial reason why you plan to wind up the business.
  2. The company should come under the category of a trading company for the last year’s duration.
  3. In the case of shareholders, the share should be to a minimum limit of 5 percent.
  4. The shareholder holds the shares of the business for a minimum period of 12 months or more.
  5. Also, the shareholders should be a part of the company, either as an employee or officers.


Does an Entrepreneur’s Tax Relief Cover Business Assets and Shares?

The good news is that this tax relief will cover business assets as well as business shares. This explains further that the partnerships and the sole trades can claim tax relief. This will be done at the point when you are selling the assets of the business. In a similar way, the director and the shareholders of the company can claim at the point of selling the shares of the company. However, the company has to be under the category of a trading company for this. If the company is a holding company that is associated with a trading group, this is acceptable too.


What are the Eligibility Criteria to Claim an Entrepreneur’s Tax Relief?

Many of you must be wondering what is the eligibility criteria to make a claim for an entrepreneur’s tax relief. There are a few conditions that will be considered before planning to make a claim. In the case, you are seeking a business asset and you want to qualify for tax relief, there are two conditions in this case. These are mentioned in the following:

  • You will have to be a sole trader or you will have to be an employee of the company.
  • Company directors are also included in this list.
  • If you are selling the shares of the company, you should be owning a minimum limit of 5% shares of the company in order to qualify for the claim.
  • The voting rights that you are entitled to must be approaching the minimum limit of 5%.


Is it Allowed for Couples to Claim?

When you are living in a civil partnership or you have a spouse with whom you own a business, it is allowed for both of you to claim for entrepreneur’s tax relief. Each one of the partners can claim a limit of £10m with the assets. This will allow you both to sell an amount of around £2m in total. However, it is important to mention here that both partners will have to qualify for the criteria before making a claim or thinking about the benefits. This means that both the partners must be employees of the company or own 5 percent of it each for a minimum period of two years.


The Bottom Line

Now that we have gathered a fair amount of information about entrepreneur’s tax relief in the UK, we can bring the discussion towards wrapping up. The entrepreneur’s tax relief can be quite advantageous, however, you will have to consider the protocols and relevant criteria to qualify for the claim. We hope these few minutes of reading will help you to develop a better understanding of the entrepreneur’s tax relief in the UK.


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Disclaimer: All the information provided in this article on entrepreneur’s tax relief in the UK, including all the texts and graphics, is general in nature. It does not intend to disregard any of the professional advice.