This relief allows gains made on the disposal of qualifying assets to be taxed at 10% instead of the standard rates of 18% or 28%, subject to a lifetime limit of £10 million. The relief is most commonly available to sole traders and partners selling the whole or part of their businesses and company directors and employees selling shares in the company for which they work and in which they exercise at least 5% of the voting rights.
For a disposal to benefit from the relief, the qualifying conditions for entrepreneur’s relief must generally be satisfied for a year ending with the date of disposal or, if earlier, the trade cessation date.
This is particularly important in relation to planned share disposals and the preservation of trading company status. A trading company is a company carrying on trading activities whose activities do not include to a substantial extent activities other than trading activities. HM Revenue & Customs regard “substantial” as more than 20% and a company with significant surplus funds or investment property on its balance sheet will need to ensure that it does not step over this 20% limit.
In addition, a shareholder must hold at least 5% of the ordinary shares and voting rights in a company throughout the whole 12 months prior to the disposal for the company to be regarded as his personal company and for any planned disposal to qualify for the relief.
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