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Businesses in a tight financial situation may qualify for Entrepreneurs’ Relief 2024, which can help them substantially save on their CGT when disposing of all or part of their company. This relief is now called Business Asset Disposal Relief, a great tax-saving tool, especially when you’re in the process of winding up. Learn more about it below.
What Is Entrepreneurs Relief 2024?
Entrepreneurs’ Relief is a huge tax break to consider if you plan to sell, close, or downsize your business, as it reduces capital gains tax (CGT) rate on your qualifying gains to 10%, from the standard rate of 20%. Here’s generally what you need to know about this relief:
- It was renamed Business Asset Disposal Relief (BADR) in 2020, but it remains known for its original term, entrepreneurs’ relief.
- It only applies to individuals in various business structures, such as sole traders, partners, and trustees. Companies themselves are not eligible for the relief.
- There are no restrictions on how often you can claim, as long as you claim within the current lifetime limit of £1 million.
- Lifetime limits depend on when you sold or ceased the business. For many claimants, the allowance is up to £1 million.
- The relief is available to you regardless of your tax bracket.
Pro-Tip: Basic rate taxpayers can especially avoid moving into higher brackets through strategic planning. For instance, you can spread your sales across different tax years to maximise your annual tax deductions.
Visit Tax Saving Tips UK guide for more information.
The 2020 Budget Changes
The former Chancellor of the Exchequer Rishi Sunak announced changes for the Entrepreneur’s Relief in the 2020 Budget. Changes include:
- Scrapping the term ‘entrepreneurs’ relief’ for ‘business asset disposal relief.’
- Reducing the lifetime allowance from £10 million to £1 million, applicable to gains made after 11 March 2020.
What’s Coming? The Autumn Budget is set on 30 October. Whether or not there will be new changes for entrepreneurs tax relief 2024, be sure to stay updated!
Lifetime Limits for Different Periods
Disposals made before 11 March 2020 have varying lifetime allowances:
- 6 April 2008 to 5 April 2010 — £1 million
- 6 April 2010 to 22 June 2010 — £2 million
- 23 June 2010 to 5 April 2011 — £5 million
- 6 April 2011 to 10 March 2020 — £10 million
Contact HMRC if you are unsure about your eligible lifetime limit. To get personalized advice and strategies, consult with tax professionals.
How to Qualify for Entrepreneurs Relief
To qualify for Entrepreneurs’ Relief, you will generally need to have been involved with the business for at least two years. It depends on your situation, such as:
- Selling all or part of your business. You must have been a sole trader or partner for at least two years, owning the business for that duration.
- Closing your business. The same two-year ownership and trading period applies. You must also dispose of your business assets within three years after winding up and closing.
- Selling shares or securities. In this case, you need to have been an employee or officeholder for at least two years, with further rules for Enterprise Management Incentive (EMI) shares.
- Disposing of assets lent to the business. You must have sold at least 5% of your share in the business and owned the assets for one year before the sale.
Plan Ahead! In all cases, you must be mindful of the lifetime limit of £1 million on tax relief, and different rules apply for shares in personal companies and EMIs. Planning ahead can help you maximize your eligibility for the relief.
How to Claim Entrepreneurs Relief
There are two ways you can claim Entrepreneurs Relief:
- Self Assessment tax return
- Filling in Section A of the Business Asset Disposal Relief helpsheet
If you are unsure about the process, seek help from self-assessment specialists.
Alternative Options If You Don’t Qualify
If you do not qualify for the relief, you will pay 20% CGT on your gains instead of the entrepreneurs relief tax rate of 10%. Limited companies, being naturally ineligible for the entrepreneurs’ relief, can take advantage of other CGT-reducing schemes, such as the following:
Business Asset Rollover Relief
If you do not qualify for the relief, you will pay 20% CGT on your gains instead of the entrepreneurs relief tax rate of 10%. Limited companies, being naturally ineligible for the entrepreneurs’ relief, can take advantage of other CGT-reducing schemes, such as the following:
Incorporation Relief
When you transfer your business into a limited company, Incorporation Relief can reduce your CGT liability. The tax on any gain is deferred until you sell your shares in the company, enabling a smoother transition to corporate structure without immediate tax concerns.
Gift Hold-Over Relief
Gift Hold-Over Relief allows you to defer paying CGT when gifting certain business assets, such as shares or property. The tax is passed on to the recipient, who will pay it when they dispose of the asset, making it easier to pass assets between family members or business partners.
Seek Professional Help! Tax advisors can assess your specific situation and help you explore alternative tax reliefs if you don’t qualify for Entrepreneurs’ Relief. These experts ensure you understand the full range of tax-efficient strategies tailored to your business needs.
FAQs on Entrepreneur Relief
Entrepreneurs’ relief is designed to help individuals in any business structure facing insolvency or finance difficulties, including sole trader, partnership, company shareholder selling securities or shares, or trust holder, except for limited companies.
Non-residents can claim Business Asset Disposal Relief if they meet specific criteria, such as being a sole trader, business partner, or shareholder in a UK-based personal company. Eligibility depends on factors like how long the business or shares were held, so seeking professional tax advice is recommended.
Entrepreneurs’ Relief was rebranded as Business Asset Disposal Relief (BADR) in 2020. Both provide a reduced CGT rate on the sale of qualifying business assets, but the name change did not affect how the relief works.
Investor’s Relief is aimed at external investors who are not actively involved in the business, such as business angels. In contrast, Entrepreneurs’ Relief (now BADR) is for business owners or those actively involved in the business.
First, calculate your gains by subtracting the purchase price from the sale price of each asset. Then, deduct allowable costs, losses, and your annual tax-free allowance. You pay 10% CGT on the remaining amount.
Where to Get Help
Anyone can be eligible for entrepreneurs relief 2024, as long as they are involved in the business for at least two years. There’s also no limit to claiming relief, given you have not yet used up your lifetime allowance.
If you are not sure about your lifetime limit or how to claim properly, Legend Financial is here to help you simplify the process. We have helped a lot of personal companies strategise their CGT obligations effectively for over twelve years. Talk to our CGT specialists today!
