David J Cox Accountant, Eastbourne

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GUIDANCE FROM HMRC

Entrepreneurs' Relief

Entrepreneurs' Relief allows individuals and some trustees to claim relief on qualifying gains made on the disposal of any of the following:

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

The relief applies for the years 2008-09 onwards. There is a maximum lifetime limit of Entrepreneurs' Relief you can claim.

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.

Find out more on personal companies in the glossary

Find out more on trading companies in the glossary

Conditions you must meet

Depending on the type of disposal, you need to meet certain qualifying conditions throughout a qualifying year.

For example, you must have owned the business during the year 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

More on the qualifying conditions in the latest helpsheet on Entrepreneurs' Relief - Helpsheet 275 (PDF 134K)

The maximum lifetime limit

There's a maximum lifetime limit on the amount of Entrepreneurs' Relief you can claim on qualifying gains. The limit is:

	the first £1 million from 6 April 2021 to 5 April 2021
	the first £2 million from 6 April 2021 to 22 June 2021
	the first £5 million from 23 June 2021
	the first £10 million from 6 April 2021

How the relief works

You can make claims for Entrepreneurs' Relief on more than one occasion. The total qualifying gains in all your claims must not exceed the lifetime limit.

Capital Gains Tax is due at 10 per cent on all qualifying gains up to the maximum lifetime limit.

Example

Mrs T stopped trading and in July 2012 sells an asset of the trade making a gain of £75,600.

The gain qualifies for Entrepreneurs' Relief, and she has no other gains or losses.

Capital Gains Tax is due on £65,000 (£75,600 less Annual Exempt Amount £10,600).

At the Entrepreneurs' Relief rate of 10 per cent her Capital Gains Tax due is £6,500.

Read about Capital Gains Tax rates and allowances

Download the latest helpsheet on Entrepreneurs' Relief - Helpsheet 275 (PDF 134K)

See a step-by-step guide to working out your gain or loss

Business Asset Roll-Over Relief

This applies when you dispose of some types of business asset, which you intend to replace. You may be able to 'roll-over' or postpone the payment of any Capital Gains Tax that would normally be due.

Who qualifies?

You can claim the relief if you're trading and you use both the assets sold or disposed of and the new assets in your trade.

For example you may be able to get relief if you sell your butcher's shop and buy a new one.

Conditions you must meet

You must buy the new asset between one year before and three years after the date you disposed of the old asset.

HM Revenue & Customs (HMRC) may extend this time limit in exceptional circumstances.

There are different additional conditions for different types of disposal. For example, land and buildings must be occupied as well as used for your trade.

See the helpsheet below for more on the qualifying conditions and time limits.

Download the latest helpsheet on Business Asset Roll-Over Relief - Helpsheet 290 (PDF 95K)

How the relief works

If you've reinvested all of the proceeds from the sale or disposal in new business assets, you can 'roll-over' (or postpone) all the gain. There'll be no tax to pay at that time.

You may still be able to postpone part of the gain if either of the following applies:

	you only reinvested part of the proceeds
	your old asset has only partly been used for your business, for example, you rented out a property for a time and then started using it in your trade

You only work out the tax due when you sell or dispose of the new asset. You then work out the tax due by reducing the cost of the new asset by the amount of the postponed gain.

Example

You bought a freehold office for £45,000 and sell it for £75,000.

You make a gain of £30,000.

You reinvest all of the proceeds in new freehold business premises costing £90,000.

You can postpone the whole of the £30,000 gain made on the sale of the old office, as you have reinvested all of the proceeds.

When you sell the new business premises and work out your Capital Gains Tax bill, you'll treat the cost of the new premises as £60,000 (£90,000 less the £30,000 gain).

Example - proceeds partly reinvested

You bought a freehold office for £50,000 and sold it for £100,000.

You made a gain of £50,000.

The new business premises cost £80,000.

The office was disposed of for £100,000 and you reinvested £80,000. The amount not reinvested is £100,000 - £80,000 = £20,000.

The amount of the gain that you can postpone is restricted.

You deduct the amount not reinvested (£20,000) from the gain (£50,000). You can postpone the difference of £30,000 (£50,000 - £20,000 = £30,000).

When you sell the new office and work out your Capital Gains Tax bill, you'll treat the cost of the new business premises as £50,000 (£80,000 less the £30,000 gain postponed).

Example - assets used partly for business

You bought a freehold shop for £80,000 and sell it for £100,000, reinvesting all of the proceeds in a new asset.

You make a gain of £20,000.

But you've only used the shop in your trade for five years out of the ten years you've owned it. Therefore it only qualifies as a business asset for 50 per cent of the time.

You can only postpone 50 per cent of the gain, so the postponed gain is £10,000 (50 per cent of the £20,000 gain).

You'll need to work out the Capital Gains Tax due on £10,000 (the remaining 50 per cent of the gain).

Depreciating assets

If you reinvest in a 'depreciating asset', the rules are slightly different. You may need to work out the tax due before you sell or dispose of the new asset.

A depreciating asset is one of the following:

	fixed plant or machinery, not forming part of a building
	an asset that will have a life of 60 years or less from the time you acquire it (for example a short term lease)

You can still postpone the gain but not always for as long - just until the earliest of the following dates:

	ten years from when you bought or acquired the new asset
	the date you stop using the new asset in your trade
	the date you sell or dispose of the new asset

Example

You sold your shop for £125,000 and spent £135,000 on a 30 year lease on 1 August 2012.

You made a gain of £20,000 on the sale of the shop and postponed all of the gain.

You use the leased premises in your trade and sell the lease on 1 July 2024.

You can only postpone the original gain until the earlier of:

	31 July 2021(10 years from the date the lease was acquired)
	1 July 2021 (the date you stop using the lease)
	1 July 2021 (the date of sale)

So the gain is postponed until 31 July 2021 (the earliest date). You'll include the gain when working out the Capital Gains Tax due for the 2022-2023 tax year.

How to claim the relief

To make a claim, use the link to the helpsheet below. You'll find a claim form on the last page.

There’s a time limit for making a claim.

To work this out you take the later of the following two dates:

	the date the old asset was disposed of
	the date the new asset was acquired

You then work out when the end of the tax year is that follows this date and add four years on.

Example

You sold an asset on 12 May 2021 and bought a new asset on 14 June 2013, so the later date is 14 June 2013.

The end of the tax year in which 14 June 2021 falls is 5 April 2014.

You must make the claim by 5 April 2018, four years later.

Download the latest helpsheet on Business Asset Roll-Over Relief - Helpsheet 290 (PDF 95K)

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