Kaushik Desai_A4 Temp 16/05/2011 15:04 Page 46
Entrepreneurs’ Relief Successive governments, whether they are Conservative, Labour or even a coalition (currently Conservative and Liberal Democrats), feel the urge to give tax incentives to entrepreneurs as this is one way of encouraging individuals to either start or purchase businesses and then grow them – the government coffers then receive income tax and national insurance on the employment of people by the business, income tax/corporation tax on the profits of the business and VAT on the sale of the business’s products or services. The form in which governments give incentives is to reduce the tax payable when the entrepreneur sells the business. he best and liberal capital gains tax rules for the sale of business assets were introduced by the Labour government (taper relief) where, at one time, the capital gains tax rate was 10% on a business asset provided you held it for just two years whilst for a non-business asset the tax rate could be as high as 40%. Taper relief was replaced by entrepreneurs’ relief with effect from 6 April 2008. Broadly, the relief reduces the amount of capital gains tax payable on the sale of all or part of the business, the sale of the business assets after the business has ceased or on the sale of the shares in the business and “associated disposals”. The relief is available to individuals and trustees subject to qualifying conditions being met. The maximum amount of gains that can be included for relief made by a particular taxpayer is capped for the taxpayer’s lifetime. This lifetime cap was set at £1m for gains made up to 5 April 2010, increased to £2m for gains accruing from 6 April 2010 and increased to £5m from 23 June 2010. The limit has been further increased to £10m from 6 April 2011. This means that on a capital gain of up to £10m, the tax liability is just an effective 10% - it is therefore potentially worth £1.8m per taxpayer. In addition,
Asian Voice & Gujarat Samachar - 2011
Kaushik Desai, is a Principal in Chown Dewhurst LLP
unlike retirement relief, an entrepreneur can build up a business, realise a gain and move on to the next business to realise a further gain without reaching retirement age. The entrepreneur will continue to pay capital gains tax at 10% provided the total gains do not exceed £10m. Entrepreneurs’ relief is available in respect of gains made on qualifying business disposals held for one year before the date of disposal. The relief is for gains arising on the disposal on the whole or part of a trading business (including professions and vocations) that is carried on by an individual either alone or in partnership. Where a business is not disposed of as a going concern but simply ceases, relief would be available on gains or assets formerly used in the business and disposed of within three years of cessation of the business. The relief also applies to gains on disposals of shares and securities in a trading company (or the holding company or a trading group) provided that the individual making the disposal l Has been an officer or employee of the company, or of a company in the same group of companies; and l Owns at least 5% of the ordinary share capital of the company and that holding enables the individual to exercise at least 5% of the voting rights in that company.
Entrepreneurs’ relief is also available to trustees on gains on assets used in a business, subject to conditions. If an individual qualifies for entrepreneurs’ relief on the disposal of a partnership share or the disposal of shares or securities, then relief is also available in respect of an “associated disposal” of an asset which is used in the company’s (or group’s) business or by a member of a partnership. For example, if a company
Finance Banking Insurance (FBI)