Entrepreneurs’ Relief (ER) entitles a business owner to significant relief from Capital Gains Tax (CGT) on the disposal of their business, often halving the consequent tax bill.
However, ER is only available in respect of disposals on incorporated businesses, meaning that the likes of sole traders must incorporate before selling as a going concern in order to qualify for a sizeable reduction in their tax bill.
To qualify for ER, the company must normally have been the business owner’s personal company for the whole of the last two years and they must have been an officer or employee throughout.
Provisions contained in the Finance Act 2019 mean that the conditions for ER will be considered to have been met where the shares in a newly incorporated business have been issued to the business owner in exchange for all business assets or all assets other than cash and as a going concern.
Failing to transfer business vehicles or premises, for example, into the new company can mean that a business owner must wait an additional two years before disposing of the company in order to qualify for ER.
Sole traders and owners of other unincorporated businesses wishing to take advantage of ER should seek professional advice at the earliest opportunity.