Capital gains qualifying for entrepreneurs’ relief (ER) are taxed at 10% rather than the standard 20% for higher rate taxpayers.
This has been a generous relief covering up to £10m of gains made by a taxpayer during their lifetime. It is up to the taxpayer to record the total value of claims they have made for ER since it was introduced in 2008.
For gains made on and after 11 March 2020 ER will only cover up to £1m of gains per taxpayer. This will be an adequate cap for most taxpayers but those who are planning to sell their business for many millions will have to pay tax at 20% on the bulk of the gains instead of at 10%.
If you had already signed contracts to sell your business or shares before 11 March you should be able to take advantage of the higher £10m cap, even if the sale is completed on or after that date.
However where the sale was artificially constructed between connected parties, such as companies controlled by the same person, the date of the transaction will be taken to be the completion date of the sale, not when contracts were exchanged.
This article is written for the general interest of our clients and is not a substitute for consulting the relevant legislation or taking professional advice. The authors and the firm cannot accept any responsibility for loss arising from any person acting or refraining from acting on the basis of the material included herein.