Building a new business can be stressful and difficult and many entrepreneurs struggle to release cash tied up in their business. This can make it difficult to invest in new startups and business ventures. One way to maintain entrepreneurial momentum is to sell all or part of your existing business, and entrepreneurs’ relief is available from the UK government to help maximise the profits realised.
How does entrepreneurs’ relief work?
Entrepreneurs’ relief up to a lifetime gains total of £10,000,000 is available to UK business owners if they sell or gift their business. It means you benefit from a reduced rate of capital gains tax on the sale – this is currently set at 10%.
This valuable tax relief is available to business partners or sole traders who either sell or give away their business interests, or a part thereof. Entrepreneurs’ relief can also be claimed by company directors or employees who own more than 5% of the business shares.
Benefits of entrepreneurs’ tax relief
Entrepreneurs’ tax relief has been available in the UK since 2008 and is considered to be one of the best tax benefits available to entrepreneurs. It is important to ensure compliance with all conditions relating to the tax relief, which include owning the business share for a qualifying period of time. Currently, entrepreneurs need to have owned their business for one year before benefiting from this tax relief, however, legislation will change in 2019 and this ownership requirement will be increased to two years.
Qualifying for entrepreneurs’ relief
Any sole trader and partial or full business partners qualify for entrepreneurs’ relief, which means that CGT is only payable at a rate of 10%. You need to have owned your business for a minimum of a year prior to its sale. If you are closing your business altogether you can still benefit from entrepreneurs’ relief, but in order to qualify, you must sell all your business assets within three years.
You can find out more about entrepreneurs’ relief and whether you will qualify for the 10% tax rate on the UK government website.
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