How does the Entrepreneurs’ Relief work?

If you’ve decided to move on from your business for whatever reason, you may be able to take advantage of something called the Entrepreneurs’ Relief, also known as Business Asset Disposal Relief.

What is the Entrepreneurs’ Relief?

The Entrepreneurs’ Relief is one of the most attractive tax reliefs in the UK. It reduces the amount of Capital Gains Tax paid on disposals of qualifying:

• businesses
• shares in a personal company
• shares from an Enterprise Management Incentive (EMI)

You can claim up to:

• 10% CGT on qualifying assets
• £1,000,000 lifetime gains

Is my business eligible for the Entrepenuers’ relief?

Not all businesses are eligible! In order for your business to qualify for the Entrepreneurs’ Relief, it must be one of the following:

• A sole trader business
• A partnership
• A limited company

Bear in mind, companies in financial services or investments will not qualify.

Am I eligible?

Again, to be eligible, you’ll have to meet one of the following:

• You’ve owned the business for at least two years before the date you sell it
• You’ve been with the company for at least two years if you’re selling shares
• If your shares are not EMI shares, you had the option to buy them at least two years before you’re selling them

How do I calculate the Entrepreneurs’ Relief?

Here are the simple steps for calculating how much you could be entitled to:

1. Add together the capital gains (what you sold your shares for), deduct losses (if any), and work out the total taxable gain eligible
2. Next, subtract your tax-free Capital Gains (CGT) Allowance
3. You pay 10% tax on what’s left

Is the Entrepreneurs’ Relief available for EMI shares?

Yes, it is! But only if these conditions are met:

• You’ve been with the company for two years
• Plus you have at least 5% of shares
• And you also have 5% of the voting rights

If the shares are from an EMI, You must have bought the shares after 5 April 2013 and been given the option to buy them at least 2 years before selling them.

If you’re not sure what the Enterprise Management Scheme (EMI) is, you can read more about it here.

What if I sold my business or shares before 11 March 2020?

In this case, you may be eligible to claim up to £10,000,000 (the Entrepreneurs’ Relief was reduced in the 2020 budget).

You might also need to only have owned the shares or business for a year instead of two.

How do I claim the Entrepeneurs’ Relief?

There are two ways in which you can claim this relief. You can either:

• Fill in the Section A of the HS275 form
• Claim when filing your Self Assessment tax return (the deadline for this is 31st January)

🕢 You have three years from the sale until you can claim. 🕢