Business Owner Series: Part 7 of 9

How does Entrepreneurs’ Relief work?

Chris Broome – Chartered Financial Planner

Business Owner Series blog

What is Entrepreneurs’ Relief?

Entrepreneurs’ Relief is a UK tax relief that is designed to reduce the amount of Capital Gains Tax (CGT) that an individual pays on the sale of certain qualifying assets. The relief applies to gains made on disposals of business assets, such as shares in a trading company or the sale of a business.

Who qualifies?

To qualify for Entrepreneurs’ Relief, an individual must meet certain conditions, including being an officer or employee of the company whose shares are being sold, or having a 5% or greater interest in the company. Additionally, the individual must have held the shares for at least 12 months prior to the sale.

If an individual qualifies for Entrepreneurs’ Relief, they are entitled to a reduced CGT rate of 10% on the first £1 million of qualifying gains. This is significantly lower than the standard CGT rate of 20% that applies to most other assets.

Important to know

It is important to note that the relief is capped at £1 million of lifetime gains, and also the relief will be withdrawn if the individual disposes of the shares within 3 years of ceasing to be an employee or director of the company.

In summary

It’s recommended to consult with a tax professional to ensure that you fully understand the rules and requirements for Entrepreneurs’ Relief and how it may apply to your specific situation.

Next steps

Please get in touch to discuss your business and the steps you can take to create long-term stability.

Next in the series – Part 8 of 9: Life after your business sale

In the next blog in the Business Owner Series, we look at ways to plan for the uncertainty and change that might follow this significant milestone. You can read it here.