Submitted by
Sestini & Co | on Tue, 02/04/2020 - 17:56 | In
HMRC,
Shares Entrepreneurs’ Relief, a tax benefit for those seeking to build a business, came into being in 2008 but is now under threat.
The 2019 Conservative manifesto pledged to ‘review and
reform Entrepreneurs’ Relief’ because it had not fully delivered on its
original objectives.
This has been confirmed by recent comments from Prime Minister, Boris Johnson, who indicated that it was likely to be stopped or restricted in the upcoming Budget on 11th March.
However, in the last few days messages have been mixed, as
Chancellor Sajid Javid has indicated that he could be reconsidering whether to
scrap the scheme.
CGT at a lower rate
Entrepreneurs’ Relief lets business owners and directors who
meet certain requirements benefit from Capital Gains Tax at 10% when they sell
shares or the business.
It applies to limited companies, partnerships and sole
traders.
Up to £10 million of Relief can be claimed during the shareholder’s
lifetime and the claim can be made once or multiple times.
A qualifying period applies which means that those eligible
must have (broadly) been a soletrader owner of the business or have been a
partner or shareholder for a minimum period of two years (other caveats
apply!).
Normally directors and shareholders pay a much higher rate of tax when taking salary or dividends, and are taxed on the sale of business shares at 10% or 20%.
The Relief, therefore, represents an important saving for business owners who currently have the freedom to keep funds in their business and invest and build their business for the long term, secure in the knowledge that they will benefit from the tax break when selling.
Complex rules
Entrepreneurs’ Relief can be claimed if a company is being
dissolved or if it will continue as a going concern, however it must have been
trading in the 24 months prior to the company ceasing to trade (and meet other
conditions).
For the 2019/2020 tax year, the deadline to claim is 31st
January 2022.
To ensure you are able to take full advantage of the Relief,
sellers should aim to finalise deals before the Budget or to exchange contracts
before 5th April 2020 if the former is not possible. This is a complex
area so ensure you take advice from a tax specialist before proceeding.
Entrepreneurs’ Relief can also apply to selling assets which
have been used as an intrinsic part of the business – restrictions apply.
We would expect to see a consultation period and
representation from key business groups such as CBI, FSB and IoD on the matter
before any proposals are progressed. As such, if changes are made they would
likely apply to the 21/22 tax year forwards at the earliest, rather than
retroactively.
Contact us
Entrepreneurs’
Relief rules are complex. Here at Sestini & Co we dedicate considerable
time and expertise to keeping up with changing case law and ensuring we are up
to date with the tax rules.
If
you need help with any tax-related issues and
would like to speak to us, give us a call
on 01761 241 861 or email us today.
We will be pleased to advise you or to invite you into our
offices in Paulton, near Bristol and Bath, for a consultation.
