October 30th, 2012 / Insight posted in

Update on entrepreneurs relief

Recently the Chancellor has doubled the lifetime limit for entrepreneurs’ relief to £10 million. This means that the potential capital gains tax saving arising from disposals that qualify for this relief is now £1.8 million. It is now even more important to make sure there are no reasons why you should not qualify.

We have compiled an overview of points to consider to ensure you qualify.

Situations which could give rise to a problem include:

  • A company having substantial non-trading activities so that it does not qualify as a trading company
  • Not holding sufficient ordinary shares in a trading company or not being able to exercise sufficient votes
  • Further share issues, for example exercising share options, diluting other shareholders below the qualifying level
  • Not being an employee of officer of a company
  • Charging rent for premises occupied for the purposes of a trade carried on by a company in which you qualify for entrepreneurs’ relief or a partnership or an LLP in which you are a partner or member
  • Shares owned by trusts where a qualifying individual does not have an interest in possession

What action should be taken?

It is more important than ever to make sure that you qualify for the relief and your business affairs are organised tax efficiently. There are several ways we can advise to give you this assurance:

  • Review of your business activities, particularly non-trading activities, and the way the business and business assets are owned to make sure that the conditions for the relief are met. It is important to remember that some of the conditions have to be satisfied for at least 12 months prior to a disposal, so it is not something that can be left until a sale is imminent
  • Looking at whether share ownership should be broadened to include members of the family bearing in mind that spouses and children have an entrepreneurs’ relief lifetime limit available
  • Keeping the position under review so that if there are any changes in the law or in the business, the impact on entrepreneurs’ relief if any can be quantified
  • Advice prior to a sale. Whilst meeting the conditions for relief needs to be looked at on a longer term basis, the way in which a sale is structured is still important. Further advice will be required at that time

To find out if you qualify, contact Mike Hayes, Principal for Kingston Smith LLP on mhayes@mks.co.uk or 020 7566 3813