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What is entrepreneurs' relief?
Posted Jul 9, 2010
At the 2008 Budget, following the announcement of a new flat 18% capital gains tax rate, the Government created a new scheme to compensate business owners who would previously have paid 10% tax on the sale of their businesses (with maximum taper relief applied).
Entrepreneurs' relief initially allowed business owners to pay the same 10% rate on the first £1 million of business sale proceeds. At Alistair Darling's final Budget, the chancellor doubled the lifetime allowance to £2m. The limit was further extended to £5m during the 'Emergency Budget', effective from 23rd June 2010.
The lifetime limit was extended to £10m during the 2011 Budget, effective from 6th April 2011.
A number of conditions have to be met before claiming the relief:
- The relief can be claimed on the disposal of all or part of a business, shares in the company, or business assets after the entity has ceased trading.
- The relief can only be claimed by an individual if you are a sole trader or in a partnership, of hold shares in your own limited company. Companies can not claim entrepreneurs' relief, although some trustees can.
- You must have owned the business for a year prior to the business disposal, or for a year prior to the date on which the business ceased trading.
- Individuals can make as many claims against their allowance over time, although gains in excess of the £10m lifetime allowance will be taxed at the standard 18% CGT rate (28% for higher rate taxpayers).
For more information, read the HMRC's PDF entrepreneurs' relief helpsheet here (although this appears not to have been updated following the Emergency Budget)!
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