Entrepreneurs’ Relief is a very valuable and effective way of managing your tax rate particularly when you are considering disposing of your business, succession issues and overall planning. It has been with us since April 2008 and is a very generous relief making the rate of Capital Gains tax on disposals of qualifying assets and shares in qualifying companies held by individuals (and certain trusts) just 10%. Because it is such a generous relief there is a lifetime limit of £10m and it has undergone various changes and restrictions from 2010 up to and including the latest budget and Autumn statements.
The common practice of building up companies and then extracting value at a maximum rate of 10% was effectively stopped from April 2016 when restrictions on winding up a qualifying company and then extracting the value at 10% can no longer happen if the recipient carries on similar activities in the same field within two years.
Additionally, the rules were amended to restrict relief on the gains on goodwill when a business is transferred to a connected company controlled by directors or five or fewer persons. The restrictions have since been relaxed in certain circumstances. The 10% rate will also be available in some cases involving joint ventures and partnerships, subject to conditions, for disposals after 18 March 2015.
In order to encourage further investment in businesses a valuable new entrepreneurs’ relief was introduced from 6 April 2016 in addition to the current one as follows:
- The relief was extended to external investors in unlisted trading companies.
- The new rules apply to newly issued shares purchased from 17 March 2016, provided that they are held for at least 3 years from 6 April 2016.
- An additional separate limit of £10 million applies for such investors.
- The individual cannot be an officer or employee of the company.
- As the rules only apply to qualifying trading companies, the definition of ‘trading company’ is to be reviewed. Therefore the changes are likely to continue.
Individuals and businesses interested in finding out more can book a free initial consultation by contacting Tom Penman on 028 9032 3466 or e mail tompenman@bakertillymm.co.uk