Changes to Entrepreneurs’ Relief can catch the unwary

“Entrepreneurs’ Relief (ER) gives a reduced rate of Capital Gains Tax of 10% to business owners, providing certain conditions are met”, says Brearley & Co Tax Manager, Andrew Cowe.  “However since April 2019, two significant changes to those conditions have been in place.”

“Firstly, the taxpayer previously only had to own the business (or shares) for one year up to the date of sale, but that period has increased to two years.  Second, he or she must now have a 5% interest in both the net assets and distributable profits of a company, whereas before all that was required was 5% of the ordinary share capital”.

“Tax legislation changes regularly, and it’s easy to be caught unawares.  When considering the sale of a business, or shares, it is vital to assess whether or not all the conditions for ER are met.  If you inadvertently fall foul of one of the conditions, the effect of losing ER is that the tax on the proceeds would double, from 10% to 20%”

As ever, it is important to take appropriate advice well in advance of executing any transaction of this nature.

Contact us if you need advice.

Andrew Cowe, Tax Manager, Brearley & Co