20 per cent VAT 2012 budget 50% return accountancy accountancy fees accountancy services accountant accountant B accountants accounting for dividends accounting records accounting software accounts accounts software administration annuity annuity rates Autumn statement avoid inheritance tax avoidance of tax avoiding inheritance tax bank lending basic personal allowance BCC big picture book keeping Bribery Act British Chamber of Commerce BS7858 budget budget 2011 Budget 2012 budgeting business business accounts online business advice business cash management business confidence business continuity business continuity management business continuity plans business cost management business efficiency business exit business exit planning business finance business friendly business funding business goals business growth business investment business loan business management business owners business performance business plan business planning business record keeping business records business sale business success business succession planning business survival business tax planning business tips bwe based account cash flow Cash flow forecast cash is king cash management Cash-based accounting cashflow chancellor chartered accountant chartered accountant Birmingham chartered accountants chartered financial planner chartered financial planner Birmin child savings children’s savings choosing an accountant client entertaining Cloud accounting Company Tax returns compliance industry contractors IR35 corporartion tax Corporation tax credit control credit control procedure cyber attack cyber crime cyber insurance cyber security cyber threats data security data security. IT security debt collection debt recovery despite some of the bad press over recent years director’s loan account directors loan directors pensions Directors’ loan account dividends doubl Dragon’s Den dragons den Economic expansion EIS email security employee data security Enterprise Investment Scheme enterprise zones entrepreneur Entrepreneur’s relief entrepreneurs entrepreneurs relief ethical hacker Everyone needs to finance their retirement and exit planning finance finance management financial advisor financial difficulty financial forecasts financial freedom financial goals Financial management financial plan financial planner financial planning financial planning checklist financial planning tips financial wellbeing FSTE 100 FTSE100 fund manager gifts global markets growth growth finance HMRC HMRC enquiries HMRC enquiry HMRC IR35 guidance HMRC tax enquiries HMRC tax enquiry home loans how to manage time ICAEW IHT income tax income tax r income tax relief income tax return independent financial advisor information security information security management inheritance tax inheritance tax planning insolvency Institute of Chartered Accountants investing Investment investment advice investment diversity investment in marketing investment management investment options investment philosophy investment planning investment portfolio investment risk investment strategies investment volatility investments investors IR35 ISO 27001 ISO 27001 benchmark ISO 27001 consultants ISO22301 ISO27001 IT security Jimmy Carr jobs keeping the books key perfirmance indicators key performance indicators KPIs kpi's late payment penalties late payment penalty fines late payments legal tax strategy management information management meetings management standards managing data security marketing investment miscalculated tax motivating staff national lottery new years resolution online accountancy online accountancy software online accounting on-line accounting online accounting software online accounts online tax return online VAT return outsourced accountancy outsourcing outsourcing accounts overtrading owner managers Parker Management Consultants partnership agreements passwords Pay off mortgage PAYE paying a dividend Payroll penetration testing pension pension contribution pension contributions pension fund Pension funds pension investment pension investment strategy pension scheme pensions pensions forecast per personal allowance trap Personal financial plan personal financial planning personal guarantees personal pension personal pensions personal tax return plumbers tax safe plan pre pack administration private pension profitable business sale R & D tax credits R&D tax credits recession red tape reduce tax remote working report on economy research and development tax credits retirement retirement planning risk risk return safest passwords Saga sareholder protection cover security of websites Seed Enterprise Investment Scheme SEIS selecting an accountant Self assessment self assessment tax return self invested personal pension selling my business selling your company shareholder agreements shareholder protection SIPP SIPPS small business small business owners small business tax small businesses small firms SME SME business management SME marketing SME tax planning SMEs social media policy SSAS start up start-up stock market succession planning tax accountant tax affairs tax avoidance tax breaks tax charges tax code tax disclosure tax enquiries tax enquiry tax evasion tax investigation tax investigations tax liability tax man tax mitigation strategies Tax planning tax planning advice tax planning schemes tax reduction tax reform tax relief Tax return tax saving tax saving strategies tax savings tax strategies Tax tribunals taxation tax-break time management time management skills top rate of tax tough times UK Bribery Act UK economy VAT increase vat return VAT rise VAT submission web based acc website security when to pay a dividend work-life balance Xero Xero accountancy software Xero accountants xero accounting xero accounts Xero accounts service

Selling your business – make sure you get full relief!

Add to: Digg Add to: Del.icio.us Add to: Facebook Add to: Furl Add to: Google Add to: Live Spaces Add to: MySpace Add to: StumbleUpon Add to: Twitter
Friday March 4, 2011 at 10:00am

With few tax-breaks available to business owners at the moment it is worthwhile knowing about one that is still very much still alive and kicking and can significantly benefit business owners planning to sell.

Entrepreneur’s relief was introduced in 2008. From 23rd June 2010 the first £5 million of gains that qualify for relief will be charged to Capital Gains Tax at an effective rate of 10 per cent. Gains in excess of £5 million will be charged at the normal 18 per cent or 28 per cent rate dependent upon an individual’s taxable income rate.

An individual will be able to make claims for relief on more than one occasion, up to a lifetime total of £5 million of gains qualifying for relief. Prior to June this limit was £2m.

As always with tax reliefs it is important to be sure that the precise conditions of the relief are met and points to watch out for in Entrepreneur’s Relief are:

  • Sole traders or partners must sell a business or a viable part of a business capable of operation in its own right to qualify for Entrepreneur’s relief. Selling an individual business asset will not qualify unless this happens after the business has actually ceased, and within three years of that cessation.
  • Sole traders and partners must have carried on the business for at least 12 months prior to the date of sale or up to the date of cessation of trading.
  • Entrepreneur’s Relief is only available on sales of shares where those are shares in a trading company or the holding company of a trading group. Any significant assets or activities within the company or group which are of a non-trading nature (for example the holding of an investment property) could cause problems in this regard and a careful review will be required. Sometimes very large amounts of cash held by a company which significantly exceed business requirements might be regarded by H M Revenue as a cash investment in this context. 
  • Where a sale of shares is concerned, the company must also be the shareholders “personal” company. This means that they must have at least 5% of the ordinary share capital of the company, 5% of the voting rights in the company and be an officer or employee of the company and they must satisfy those tests for at least 12 months prior to the disposal of the shares. This does not mean that all the shares being sold necessarily need to have been owned for 12 months, provided that the 5% test has been satisfied for the 12 month period. In a family company some shareholders may not be employees or small shareholdings may be held below the 5% requirement. In these circumstances planning ahead of any sale of a company may be important to try and ensure that these requirements can be met in the crucial 12 month period prior to sale.
  • If a gain arises on shares in a trading company because it is wound-up after it has ceased trading, then the personal company conditions will have to be met in the 12 months up to the date that trading ceased and the winding up will have to take place within three years of the cessation of trading.

Complicated? Yes, but not with the right advice. The above is not exhaustive and your accountant should be able to help you understand whether you qualify – in fact if you are thinking of selling your business they should automatically talk to you about this option. If they don’t you might question their abilities in tax planning!

Andy Parker

Chartered Accountant and Tax Advisor Birmingham

Comments on this post:

There aren't any comments for this post yet. Why not be the first to comment?

Share your experiences:

Your Name  
(to appear with your comment)
Email Address  
(will not be published)
Human Validation Check  
In the box below, please type the characters that you see in the picture. This helps us to ensure a real person (and not a crafty computer!) is submitting this form.

Enter the code shown to the left:

Parker Chartered Accountants and Financial Advisors is the trading name for Parker Business Development Ltd (Registered No. 4116664), Parker Tax and Trust Ltd (Registered No. 06950353) and Parker Financial Planning LLP (Registered No. OC347027). Parker Financial Planning LLP is authorised and regulated by the Financial Conduct Authority. All companies are registered in England and Wales – registered office contact details here