What is Entrepreneurs Relief (ER)?
ER was created to encourage people to set up and grow their own businesses, by providing a reduced level of Capital Gains Tax (CGT) on business disposals (when you decide to either sell or dissolve your Limited Company).
Who can claim ER?
ER is available to shareholders who are trading using a Limited Company and who have held the business assets in question for more than 12 months. It’s usually applied to a business disposal or share sale, but can also be claimed for other assets.
You must have been a serving partner, director or employee and have held at least 5% of the share capital in the year preceding the sale, If you’re disposing of business shares.
How does ER work?
To calculate your personal ER, you must firstly deduct your CGT annual exemption from the amount of your gain. Then, multiply this gain by 10% to leave you with your CGT liability.
Should you be fortunate enough to reach the lifetime allowance threshold of £10 million, then any further gains are made at the standard CGT rates.
There are deadlines for when ER must be claimed. If business assets were disposed of during the 2015/16 tax year, then you must make your ER claim by 31 January 2018.
You are able to make a claim on your Self-Assessment Tax Return, but we strongly advise you seek the professional advice and support of an expert Limited Company contractor accountant.
For more information Entrepreneur’s Relief, please visit HMRC’s website.
This blog has been prepared by Intouch Accounting. While we have made every attempt to ensure that the information contained in this blog has been obtained from reliable sources, Intouch is not responsible for any errors or omissions, or for the results obtained from the use of this information. This blog should not be used as a substitute for consultation with professional accounting advisers. If you have any specific queries, please contact Intouch Accounting.