Entrepreneurs relief which is now known as Business Asset Disposal Relief is one of the reliefs available to the business owners and the entrepreneurs when they sell the asset.
If you are eligible for this relief it will help you reduce the capital gains tax that you pay on the disposal of an asset.
You will only have to pay 10% on the profit that you make as a result of the disposal of a qualifying asset instead of a normal CGT which is paid at 10% or 20%.
Am I eligible for the Business Asset Disposal Relief if I am a Contractor?
In the following cases a contractor can qualify for Business Asset Disposal Relief:
- If he is working through their own limited company. In this case the contractor is the company's sole director and employee
- If you are working as a sole trader or a partner
You will not qualify for business asset disposal relief if you work through an umbrella company.
As a sole trader you are eligible for the reduced rate of CGT(business asset disposal relief) if you owned the asset for 2 years or more.
If you are closing down your business:
If you are closing down your business and you dispose of all your assets within 3 years of selling your business then you can claim the relief. For example if you are planning to sell your business in 2022, to qualify for Entrepreneurs relief you must sell all your business equipment and assets by 2025.
There is no limit as to how many times you should claim the relief, you can claim it as many times as you want provided your profit does not exceed £ 1 million over your lifetime. Once you hit the £1 million cap in your life you won't be eligible to claim Business Asset disposal relief
If you are selling shares in the company you have invested in
You can claim business asset disposal relief if the following applies to you:
- The company must be a trading company. A company is a trading company if the non-trading activities such as investments don't take up more than 20% of its income.
If a company goes from being a trading company to a non-trading company you will still be eligible for business asset disposal relief as long as you sell your shares within 3 years.
- You must own at least 5% of the company's share and voting rights.
- You must have owned the shares for at least 2 years before claiming business asset disposal relief
- You must be entitled to at least 5% of the profits if the company is sold or dissolved
- You must have been an employee or an officeholder of the company for at least 2 years.
If you are closing your business you should not be involved in the same business activity for at least 2 years otherwise HMRC might consider your profits as income distribution and you might have to pay dividend tax on it.
If you are looking for an accountant in London contact Taxaccolega and our expert accountants will help you with your taxes. They have expert knowledge and they can advise you on what the most tax efficient structure to use to run your business and utilise the tax reliefs available.