Entrepreneurs' Relief

Entrepreneurs' relief - how to qualify

Entrepreneurs' relief is a welcome concession to the small business community who felt that the loss of business taper relief was an unfair tax on those selling their businesses to fund their retirement.

As such, the new relief is a kind of resurrection of the old retirement relief, which was phased out between 1998 and 2003. The new rules, enacted on April 6, are simpler. There is no minimum age limit for entrepreneurs' relief (under retirement relief you generally had to be 50 plus to get relief). And in general, entrepreneurs' relief will be available where the relevant conditions are met for a period of one year, instead of the retirement relief qualifying period of up to ten years.

However, the maximum tax saving that can be achieved under entrepreneurs' relief will be £80k, whereas an individual able to claim maximum retirement relief could see their tax liability reduced by £250k. Of course, with the business taper relief there was no upper limit and billion pound gains were being taxed at 10% with the private equity industry benefiting the most.

At the time of writing, it is unlikely that anyone can now start making new arrangements to try and benefit from business asset taper relief by crystallising any gain before April 6. As such, all deals should be at a well advanced stage.

We continue with a look at the draft legislation (including extracts). Of course it should be remembered that we have not seen the final act yet and there may be some changes to come. Therefore, we strongly advise that professional advice is taken before taking any action. When the new act is published we will look at it immediately in detail, and any particularly relevant changes will be published on our blog at http://www.business-sale.com/blog

How to access Entrepreneurs' relief

Entrepreneurs' relief can be applied to qualifying individual or trust business gains. It has to be claimed by the individual or, in the case of a disposal of trust business assets, jointly by the trustees and the qualifying beneficiary. The deadline for making the claim is the first anniversary of the 31st January following the tax year in which the qualifying business disposal is made.

For a gain to qualify for Entrepreneurs' relief, the disposal must meet the qualifying business asset disposal criteria. Generally the qualifying conditions for Entrepreneurs' relief are stricter than for business asset taper relief. Certain conditions must be met with respect to the significance of the disposal and the period of time that the taxpayer has held the asset. Disposal of an asset used for business purposes without there also being a disposal of the whole or part of that business will not qualify for relief. There are 3 categories of qualifying business proposals.

• A material disposal of a business asset
• A disposal of trust business assets
• A disposal associated with the relevant material disposal.

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