Entrepreneurs’ Relief?

Question

Duncan, what is Entrepreneurs’ Relief?

Answer

Entrepreneurs´ relief was introduced with effect from 6 April 2008. This relief is available to individuals and trustees who, on or after 6 April 2008, make a “qualifying business disposal” of the whole or part of a “trading business” or shares in a trading company in which they have a qualifying interest.

The effect of the relief is that the first £1 million of gains, on a cumulative lifetime basis, that qualify for relief are charged to CGT at an effective rate of 10% (this is because the relief is given by way of a 4/9th reduction in the chargeable gain). Gains in excess of £1 million are charged at 18%.

Claims can be made on more than one occasion up to a ´lifetime limit´ of £1 million of qualifying gains. There is no age limit for the relief (unlike the old retirement relief). The main condition is that the qualifying conditions must have been satisfied for at least one year before disposal.

These changes will mean that someone who, after 5 April 2008, disposes of an asset owned prior to April 1998 will lose the benefit of any indexation allowance that had accrued up to that date, and also any taper relief (business or non-business) that had accrued after that date up to 5 April 2008. The annual exempt amount (£9,600 for 2008/09) will still be available.

That individual will then be subject to CGT on the chargeable gain at 18%, as opposed to paying CGT at his marginal rate(s) of income tax which applied up to 5 April 2008.