David J Cox, ACPA, Certified Public Accountant

Entrepreneurs’ Relief was introduced on 6 April 2008. It allows individuals in business and some trustees to claim relief on the first £1 million of gains made on the disposal of any of the following:

all or part of a business
the assets of a business after it has ceased
shares in a company

Who qualifies?

The relief is available for you as an individual if you:

are in business, for example as a sole trader or as a partner in a trading business
hold shares in your personal trading company

See the glossary links below for more on personal and trading companies.

The relief is also available for some trustees.

Entrepreneurs' Relief is not available for companies.

Conditions that must be met

Depending on the type of disposal, certain qualifying conditions need to be met throughout a qualifying one year period.

For example you must have owned the business during a one year period that ends:

on the date your business was disposed of - if you're selling all or part of your business
on the date your business ceased - if your business has ceased

How the relief works

Entrepreneurs’ Relief reduces the amount of gains liable to Capital Gains Tax by four-ninths on all qualifying gains up to £1 million.

You can make claims on more than one occasion as long as the total of all your claims doesn’t exceed £1 million of qualifying gains.

Example

Your business has stopped trading and a month later you sell an asset of the trade, making a gain of £90,000.

Entrepreneurs' Relief reduces the gain liable to Capital Gains Tax by four-ninths.

Four-ninths of the £90,000 gain is £40,000 (£90,000 × 4/9 = £40,000).

You must work out the Capital Gains Tax due on the remaining gain of £50,000 (£90,000 - £40,000 = £50,000).

Personal company

A personal company is a term used to describe a company that you have a certain level of control in.

The term helps to define whether an asset is classed as a business asset for Capital Gains Tax relief purposes, eg one of the criteria may be that the shares are in a personal company.

For Gift Hold-Over Relief and Taper Relief a personal company is one where you have at least 5 per cent of the voting rights.

For Entrepreneurs' Relief a personal company is one where you own at least 5 per cent of the ordinary share capital and that gives you at least 5 per cent of the voting rights.

Tax-free allowances for Capital Gains Tax

The annual tax-free allowance (known as the Annual Exempt Amount) allows you to make a certain amount of gains each year before you have to pay tax.

Nearly everyone who is liable to Capital Gains Tax gets this tax-free allowance.

There's one Annual Exempt Amount for:

most individuals who live in the UK
executors or personal representatives of a deceased person’s estate
trustees for disabled people

Most other trustees get a lower Annual Exempt Amount.

Category	2008-2009	2009-2010
Individuals, personal representatives and trustees for disabled people	£9,600	£10,100
Other trustees	£4,800	£5,050

Tax year	Rate
2008-2009	18%
2009-2010	18%

back to home page