Gains on assets qualifying for entrepreneurs' relief are taxed at 10% (2018/19), subject to a lifetime limit of £10 million. It is available where there is a material disposal of business assets. You’ll qualify if you dispose of any of the following:
- all or part of your business as a sole trader or business partner - including the business’s assets after it closed;
- shares or securities in a company where you have at least 5% of shares and voting rights (known as a ‘personal company’);
- shares you got through an Enterprise Management Incentive (EMI) scheme after 5 April 2013;
- assets you lent to your business or personal company.
You may also qualify if you’re a trustee selling assets held in the trust.
If you’re selling all or part of your business, both the following must apply:
- you’re a sole trader or business partner, and
- you’ve owned the business for at least one year before the date you sell it.
The same conditions apply if you’re closing your business instead. You must also dispose of your business assets within 3 years to qualify for relief.
If you’re selling shares or securities, both the following must apply for at least one year before you sell your shares:
- you’re an employee or office holder of the company (or one in the same group), and
- the company’s main activities are in trading (rather than non-trading activities like investment) - or it’s the holding company of a trading group.
Either of the following must also apply for at least one year before you sell your shares:
- you have at least 5% of shares and voting rights in the company - if they’re not EMI shares, or
- you were given the option to buy them at least one year before you’re selling them - if they’re EMI shares
If the company stops being a trading company, you can still qualify for relief if you sell your shares within 3 years.
If you’re selling assets you lent to the business, both the following must apply:
- you’ve sold at least 5% of your part of a business partnership or your shares in a personal company, and
- you owned the assets but let your business partnership or personal company use them for at least one year up to the date you sold your business or shares - or the date the business closed.
The new investors' relief allows for investors to enjoy a lower rate of tax of 10% on lifetime gains of up to £10 million of investments into shares. The shares acquired must be shares in a non-listed trading company and be issued after 17 March 2016. The relief is similar to entrepreneurs' relief however the investor is prevented from being an employee or office holder and must not be connected to anyone who is. The purpose of the investors' relief is to encourage external investors to make long term investment in unlisted trading companies.
The shares must be subscribed for, must be fully paid up and the consideration must consist wholly of cash. They must be issued for genuine commercial reasons and not as part of a scheme or arrangement. The shares must also be ordinary shares. The shares have to be held continuously by the individual for at least three years from the date of issue to the point of disposal.
The company must be a trading company or the holding company of a trading group throughout the holding period and the shares cannot be listed on a recognised stock exchange at the point the shares are issued.
Hold-over relief (gift relief)
If an individual gives away a qualifying business asset, the transferor and the transferee can jointly claim within 4 years of the end of the tax year of the transfer, that the transferor's gain be reduced to nil.
The transferee is then deemed to acquire the asset for market value at the date of transfer less the transferor's deferred gain and would be liable for a chargeable gain when he later disposed of the asset.
The asset need only be a business asset in the hands of the transferor. It is immaterial if the transferee does not use it for business purposes.
The definition of qualifying business assets is not the same as for entrepreneurs' relief. They are:
- Assets used in a trade, profession or vocation carried by the donor or the donor's personal company (where he holds 5% of the voting rights).
- Shares and securities in trading companies which are not listed on the stock exchange.
Roll-over relief - the replacement of business assets
Roll-over relief is available where there is reinvestment in qualifying assets in the period commencing 1 year before and ending 36 months after the disposal concerned. All the following conditions must be met:
1. The old asset sold and the new asset bought are both used only in the trade or trades carried on by the person claiming roll-over relief. If part of a building is used for non-trade use for all or a substantial period of ownership, it must be split into two assets. This split is not made for other assets.
2. Reinvestment of the proceeds received on the disposal of the asset takes place in a period commencing 1 year before and ending 36 months after the disposal.
3. The new asset is brought into use in the trade on acquisition, but not necessarily immediately.
4. The old asset and the new asset both fall within one (but not necessarily the same) of the following:
- Land and buildings occupied as well as used only for the purpose of the trade
- Fixed (immovable) plant and machinery
The new asset can be used in a different trade from the old asset.
A claim for relief must be made within 4 years of the end of the tax year in which the disposal of the old asset is made.
This relief applies where a person other than a company transfers a business as a going concern with the whole of its assets (or the whole of its assets other than cash) to a company wholly or partly in exchange for shares.
Provided that various conditions are satisfied, the charge to CGT on the whole or part of the gains will be postponed until such time as the person transferring the business disposes of the shares.
Losses on loans to traders
Under certain circumstances a loss may be claimed:
- where money lent to a person carrying on a trade, profession or vocation and used wholly for the purposes of that person's business has become irrecoverable, or
- where payment has been made under a guarantee in respect of such a loan.
Relief is not available if there was no realistic chance of the loan being repaid at the time it was made. In addition, the lender and the borrower must not be each other's spouses, or companies in the same group, when the loan was made or at any subsequent time.
This information is not meant as a substitute for professional advice and by no means covers every scenario. Almost every rule described here will be subject to many exceptions and caveats. Tax legislation is extremely complex and can be difficult to understand. You should discuss your circumstances with a qualified professional before acting on any information contained within this website. Tax legislation is constantly changing and the information contained within this website is written from our current understanding and interpretation of the tax system as of 6 April 2018.