Emma DowdView Profile
The 2020 budget saw the announcement of new measures that would be introduced to change the way that Entrepreneurs’ Relief (ER) works. One of the most obvious changes is that it will now be officially referred to as ‘Business Asset Disposal Relief’ – but just what does this mean for those looking to claim?
What is Entrepreneurs/Business Asset Disposal Relief?
Entrepreneurs Relief (or Business Asset Disposal Relief, as it will now be known) is a 10% tax relief on capital gains from the disposal of certain business assets, including shares in a trading company.
Previously, this saw eligible individuals receive relief on gains of up to a £10million lifetime limit, with a value of up to £1million (10%).
What do the changes mean?
Although the rebranding itself brings with it no practical impact on the relief, key changes announced in the March budget included a reduction in the lifetime allowance associated with the claims.
From 11th March 2020, claims have been limited to 10% of the first £1million of lifetime gains, meaning claimants who have already received relief on gains of £1million or more will no longer qualify. This values the total amount of claimable relief at £100,000, a vast reduction from the previous figure of £1million. Any subsequent gains will be subject to the standard level of capital gains tax, which currently sits at 20%.
Any new claimants who have not previously benefited from the relief will only be able to claim the reduction in tax on a lifetime limit of £1million.
Furthermore, these measures have been enacted to apply retrospectively. This means that some transactions which took place between 6th April 2019 and 11th March 2020 will now be subject to the £1million lifetime limit.
What are the alternatives?
For shareholders seeking tax-efficiency in the sale of certain busines assets, there are alternatives.
Similar to what was Entrepreneurs’ relief, Investors’ Relief qualifies those eligible with a 10% tax relief on gains of up to £10million. This holds the same value as ER did previously, but in contrast, it is only available to shareholders who are not company employees, and are not involved in the running of the business. This means that business owners and directors may not benefit from the savings that Investors’ Relief has to offer while they are involved directly in the business itself.
The March 2020 budget saw key changes in the way that Entrepreneurs’ Relief (ER) works. The most obvious of these changes was the renaming of the tax relief scheme to ‘Business Asset Disposal Relief.’
While the name change itself has no practical impact on the relief, certain changes to the scheme included in the Finance Bill will transform the way that claims are managed for those eligible. This includes a reduction on the lifetime limit of gains eligible for the 10% tax relief from £10million to £1million. This means that individuals seeking to benefit from the lower tax rate will only be able to claim a maximum of £100,000, compared with the previous amount of £1million. Those who have benefited from the relief in the past on gains of, or over, £1million will not be eligible for any future claims.
These new rules have been enacted retrospectively on some transactions, meaning that some claims made from 6th April 2019 to 11th March 2020 may also see the lifetime eligible gains limit of £1million applied.
Though alternative relief schemes are available on the sale of company shares (such as Investors’ Relief) these do not apply to company directors/employees, or anyone involved in the running of the business in question.
How we can help
If you are looking to close your company in the most tax-efficient way possible, we can help. As licensed insolvency professionals, we can oversee the process of Members’ Voluntary Liquidation (MVL), a process by which a company’s assets can be realised, and funds released in a straightforward, tax-efficient manner. We offer a free consultation with one of our experienced advisors to identify the best way forward in your situation. For further information, read more on MVL here, or get in touch today.