What Is Entrepreneurs Relief?

Entrepreneurs relief was introduced in 2008 for business owners as an incentive to start and grow British businesses.

The rule states that if you sell your company you’ll only pay tax at 10% on any capital gain.
Which is quite attractive for a startup looking for an exit…

However, there are some restrictions and conditions:

  • You must own 5% or more of the company
  • Entrepreneurs relief is available for up to £10,000,000 in lifetime gains
  • You must have held the shares for a minimum of 12 months
  • You must have been involved in the running of the business (speak to us for the latest rules)

Other restrictions (less likely to apply to most) are that the company has to actually be trading and it can’t be an investment vehicle.

What does relief mean?
A relief in the eyes of HMRC means that you have to apply for it. HMRC could in theory not grant it, but if you apply, and you’ve kept within the rules then you will get the relief.

How do you make a claim?
Once you sell your company or sell shares in a company you had a key role in building you can claim the relief on your tax return.

Investors relief
Aligning with the government’s incentive to create a strong enterprise culture, investor relief is also available (IR).
Not to be confused with SEIS and EIS reliefs, investors can also benefit from a reduced 10% capital gains rate when investing in non-listed companies when certain criteria are met.
This is separate to Entrepreneurs relief and gives an additional £10,000,000 lifetime allowance.

  • Shares must be newly issued on or after March 2016
  • Shares must have been held for a period of three years starting from 6th April 2016
  • The investor may not be an employee (with some ‘business angel’ exceptions)

We recently took on a client who had sold a company asset for 7 figures. The asset was stripped out of the company and sold on its own rather than being sold as a limited company.

Because of this, corporation tax was due at 19% plus any additional tax like PAYE, dividend tax to take that money out personally. The effective tax rate on this transaction was probably in the region of 50-60%…
If they had sold the limited company with the asset inside, they would have benefited from the entrepreneur’s tax relief and saved 40-50% in tax… a substantial saving!

The sums of money involved in these reliefs can be large, and as such we strongly advise you speak to an accountant to make sure you’re structured correctly to get this relief should you ever choose to sell your company shares.

Get your tax affairs in order now, and make sure you are claiming for everything you are entitled to and aren’t paying a penny more in tax than you need to.

Call us at RJF today for a friendly chat.

(This article is meant as a guide only, rules, regulations and law can change)