By Ola Sulaimon
Ronzl Accountants
ENTREPRENEURS usually start a business with the faith and hope that it works out as the planned.
When they decide to dispose of the business, if they have the meet the specific conditions, they could claim entrepreneur relief.
Entrepreneur relief is available where there is the material disposal of the business asset by sole traders/partners selling whole or part of their business or a company director that works for a company and has at least five per cent of the shares of the market.
The entrepreneur relief was introduced to reward the entrepreneurs for the risk they take in the start and grow their business.
The rate of capital gain tax for entrepreneurs that claim this relief is at 10 per cent on the gain rather than 20 per cent for higher rate taxpayers and 28 per cent on residential property.
The following conditions must be met to qualify for this relief.
1. It must be a trading company – a trading company is one that that carries on trading activities which does not include more than 20 per cent of non-trading activities.
2. The business must have been owned for one year before the sale.
3. Associated disposal – this occurs when a taxpayer disposes a material part of their business and at the same time that he sells an asset that he owns and uses for the business, e.g., business premises.
This asset, however, must have been used in the business for at least one year and must have been owned by the individual for three years before the disposal.
One of the conditions above is that the entrepreneur selling the business must hold at least five per cent of the shares of the company for at least one year.
At times an entrepreneur may lose out on this relief as a result of the shareholding becoming reduced or diluted below five per cent. This fear of losing out on entrepreneur relief can create a barrier for the business to grow.
The HMRC are making proposals on reducing this risk by:
1. Providing a new facility that allows individuals to elect to be treated as having disposed of and reacquired their shares at the then market value
2. Allowing individuals to defer the taxation of the gain until actual disposal of the shares.
To find out more contact Ronzl Accountants Ltd, 51 Billing Road, Northampton, call 01604 965826 or see the website at www.ronzlaccountants.co.uk