Entrepreneurs’ relief

Back in June chancellor George Osborne raised the rate of capital gains tax to 28 per cent. 

Back in June chancellor George Osborne raised the rate of capital gains tax to 28 per cent. 

Back in June chancellor George Osborne raised the rate of capital gains tax to 28 per cent.  

While this is lower than some feared, it still represents a significant increase on the previous 18 per cent rate that applied for just 26 months, or the earlier effective rate applicable to business property disposals of
10 per cent.

One crumb of comfort was that the personal allowance for capital gains remained in place at £10,100 and was not reduced as some media sources suggested.

Osborne did, however, greatly extend the scope of entrepreneurs’ relief which had been introduced by Alistair Darling two years previously but had been limited to a lifetime maximum of only £1 million on introduction (raised by Darling to £2 million in his March 2010 Budget). At the £1 million and £2 million thresholds, the relief was limited in its scope and application and provided little comfort to entrepreneurs.

The terms of the relief are that it is available on making a claim in respect of a ‘material disposal of business assets’ and extends in certain circumstances to disposal by trustees of business assets and of assets used for the purposes of a business. The relief covers an individual disposing of the whole or part of a business or of assets used in a business carried on alone or in partnership. In addition to this, the relief applies to the disposal by an individual of an interest in a company which is the individual’s “personal company” and is either a trading company or the holding company of a trading company and in which the individual is either an officer or an employee.

The definition of what is a personal company is not what might immediately be considered “personal” in that an individual must simply own at least 5 per cent of the ordinary share capital and be able to exercise at least 5 per cent of the voting rights by virtue of that holding. In general, shares must have been held for at least a year in order to qualify for the relief.

The new lifetime limit of £5 million represents a significant increase in the relief and means that for many business people there will be some scope to plan their affairs to meet the requirements. Within family companies and many smaller enterprises, there is obviously a real ability to arrange affairs over time to enable more than one or two family members or board members to qualify for the relief.

The relief does not, however, remotely meet the aspirations of many business executives in businesses or ventures where, notwithstanding stakes of often significant value, there is not the scope for a qualifying percentage share to be held.

For more information:

Alastair Collett, Partner
Bircham Dyson Bell
Tel: 020 7783 3711
Email: alastaircollett@bdb-law.co.uk

Nick Britton

Nick Britton

Nick was the Managing Editor for growthbusiness.co.uk when it was owned by Vitesse Media, before moving on to become Head of Investment Group and Editor at What Investment and thence to Head of Intermediary...

Related Topics