The "What, How and Who" of Entrepreneurs' Tax Relief

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The "What, How and Who" of Entrepreneurs' Tax Relief

As the Managing Director of a Corporate Finance practice, Paul Heaven of Blue Sky Corporate Finance is often approached by the owners of SME’s to explain the “What, How and Who” of Entrepreneurs’ Tax Relief.

Let’s deal with the “what” first.  This tax relief was introduced in 2008 to help the owners of small businesses who would otherwise be faced with hefty Capital Gains Tax (CGT) bills when they sold their businesses.

How is Entrepreneurs’ Tax Relief (ETR) beneficial to businessmen with small companies?  The relief enables many entrepreneurs to pay just 10% CGT when they sell the assets they created.  The ETR allowance of £10 million of capital gains is a life time limit so an individual can make a number of disposals of businesses during his lifetime but may not exceed this limit if they are to benefit from ETR.  It is also worth bearing in mind that there is a time limit imposed, for instance, a qualifying business disposal in the tax year 2011-12 (ending on 5th April 2012), must make a claim for Entrepreneur’s Relief by 31st January 2014.

So now we can deal with “who” is entitled to ETR.  Entrepreneurs’ Relief is available to individuals and some trustees of settlements but it is not available to companies and personal representatives of deceased persons.  You must also have owned the shares in the business for one year before the date your business was disposed of, or on the date your business ceased.  The conditions for relief and operation of the relief differ slightly if you are a sole trader, a partnership or an investor in a limited company.

Paul Heaven commented “There are all sorts of rules and regulations and that’s why it is important when an owner of a small business is thinking of selling his business to speak with someone who understands this form of tax relief”.

Note:  This information is based on tax legislation current on day of issue.