What is entrepreneur’s relief?
If you’re a business owner planning to sell up or wind up your company, Entrepreneurs’ Relief can save you a small fortune on your tax bill. Here are some facts and figures:
Entrepreneur’s relief is a reduced income tax rate for Shareholders who want to close their company and extract the cash in the most tax efficient way. Income tax is then paid on the self-assessment tax return for the tax year is which the company is closed. Each shareholder is entitled to the relevant shareholding proportion of their capital gains distribution.
The regular rate of Capital Gains Tax (CGT) is 20% for people paying more than the basic rate of income tax, however applying for Entrepreneurs’ Relief allows sellers to only pay a reduced rate of 10% on the disposal of shares.
Entrepreneurs’ Relief is subject to a lifetime allowance of £10 million for disposals on or after 6th April 2011.
Each individual is entitled to have £11,700 tax free Capital gains distribution (annual exemption allowance), but please note this rate is for 18/19 tax year and may vary from tax year to tax year.
1. Your company has to have traded for at least one full year.
3. You are a director, office holder or paid employee for at least 12 months.
In our example, both individuals are closing through voluntary member’s liquidation but Laura is entitled to entrepreneur’s relief and Ben is not.
|Eligible for Entrepreneurs’ Relief||Yes||No|
|Works full time and higher rate tax payer||Yes||Yes|
|100% shareholder of their own company||Yes||Yes|
|Has £100k profits in the business||Yes||Yes|
|Entitled to annual exemption of £11,700 (2018/19)||Yes||Yes|
|Taxable capital gains (£100,000 – £11,700)||£88,300||£88,300|
|Capital gain tax payable||£8,830||£17,660|
Please be aware there are restrictions of claiming Entrepreneurs relief more than once, please contact Dave at OnTheGo Accountants for a free consultation.