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Have You Considered Whether You Qualify for Entrepreneurs’ Relief?

When selling your business one of the key considerations is how much money you will receive from the sale (i.e. the proceeds after associated costs and tax). Capital Gains Tax (CGT) is one of the main costs to a seller and ensuring you qualify for Entrepreneurs’ Relief (ER) can significantly reduce these costs.

If the disposal of your business does qualify for ER, a CGT rate of only 10% will apply to any gains on the disposal (up to a lifetime limit of £10m). If ER is not available any gains may be taxed at rates of up to 20%, so ensuring you qualify for ER could halve your tax liability.

There are a number of conditions that must be met for a period of at least two years prior to the date of disposal in order to qualify for ER, including:

  • The business must be a trading business
  • If it is a share disposal, the company must be the sellers ‘personal’ company (i.e. you must own 5% of the ordinary shares, have 5% of the voting rights, and meet conditions regarding rights to dividends and proceeds on a sale or winding up of the company). The seller must also be an officer or employee of the company.

It is therefore important to assess whether the sale of your business will qualify for ER in sufficient time before a disposal so that steps can be taken to ensure the 10% tax rate applies. For example, transferring shares, appointing shareholders as directors, or restructuring your business to ensure trading and non-trading assets are separated may need to be considered.

What is our role?

Our Taxperts will work with you to ensure that any appropriate steps that can be taken to safeguard your ER are made in a timely manner to help reduce your tax burden.

If you are thinking of selling your business and would like to discuss your circumstances with sector leading experts, then please contact our Transaction Tax team today.

You can read our advice on ‘What is your business worth’ here.

Disclaimer:  We make every effort to ensure that the information provided is accurate and up to date, however EQ cannot be held responsible for any action taken, or not taken, as a result of reading this publication. Any potential business looking to sell should seek separate legal and taxation advice prior to the sale.

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