Entrepreneurs' relief lifetime allowance doubled

Baker Tilly Analysis

The doubling of the lifetime limit for entrepreneurs’ relief will provide a welcome long-term advantage to owner-managers who have developed their business to the point of sale. The potential value of the relief to an individual is now £160,000.

In detail

Entrepreneurs’ relief provides a reduction of 4/9ths of the gain made when shares in a qualifying trading company are sold. The sale does not need to be on retirement. The main requirements are that the person selling or giving away the shares must have owned the shares and been an employee or office holder for at least a year before the disposal takes place. The relief is restricted to trading companies and remains beset by over-complex and inconsistent rules.
Entrepreneurs preparing for retirement or another step change in their business life can still lose out on the relief. For example, if they sell business assets that they own personally in advance of a sale of their shares, the relief does not apply to the prior disposal.
The relief is also of limited value as it only ensures that the first £2 million of capital gain during an individual’s lifetime is taxed at 10%. The balance remains taxable at the normal rate of capital gains tax, currently 18%. For a serial entrepreneur or a very successful business owner, the £2 million limit is restrictive.