Entrepreneurs relief (from CGT)

Since 22 June 2010 an “entrepreneur” has been able to dispose of assets giving rise to “qualifying gains” of up to £10 million, paying CGT at only 10%, on withdrawal from “participation” in the business. They have to be shares in a “trading company”, or company which is part of a trading Group of which the owner holds at least 5% of the ordinary shares, has at least 5% of the votes, and is an officer or employee. The relief can also apply to a Partnership, or where the qualifying individual is a beneficiary of a Trust, and to assets used in a qualifying business as long as rent has not been paid to the retiree.

Gains can be realised at different times, subject to the lifetime cap of £10 million, as long as the business interest has been owned for at least a year. There can be problems for farmers who run several farms but only cease farming one of them. ER can apply to disposals by way of gift, not just on sale.

If you are contemplating retirement over the next 3 years or so, it is time to start laying tax plans, whether you are winding up or selling the business completely, or whether you are making succession plans for an ongoing business.

Apart from ER/CGT don’t forget that you will be exchanging a business asset which may qualify for 100% Inheritance Tax relief (APR or BPR) for liquid assets which may bear IHT at 40%. You should also be reviewing your Will and IHT planning arrangements.

The law and practice referred to in this article has been paraphrased or summarised. It might not be up-to-date with changes in the law and we do not guarantee the accuracy of any information provided at the time of reading. It should not be construed or relied upon as legal advice in relation to a specific set of circumstances.

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