Last month’s Budget Statement brought welcome news for UK business owners, in the form of a doubling of the lifetime allowance for Entrepreneurs’ Relief (ER) with effect from 6 April 2011. This means that each individual can now potentially realise gains of up to £10m on the disposal of business assets, and only pay capital gains tax (CGT) at 10% on those gains. With the top rate of CGT now 28%, the possible tax savings on offer can be as much as £1.8m.
However, the ER rules are complex, and time limits apply. Generally relief will only be available in respect of an interest in, or an asset of, a predominantly trading business, which has been held for at least one year ending with the date on which the interest is disposed of (or the business in which the asset was used is sold or ceased trading). Where the interest is unquoted company shares, there are also minimum shareholding and employment tests to be satisfied. It is important, then, to ensure that business activities are structured so that the opportunity for capturing ER on a sale or other disposal is maximised. For anyone contemplating the disposal of a business interest or business assets, advice from an expert is essential.
Amongst the points an adviser will look at with you is whether any reorganisation of the business is required. If your business has a mixture of trading and investment activities, is it possible to hive off some of the non trading aspects to ensure that there is a core trading entity which will qualify for ER? Consideration should also be given to whether other family members should become involved in the business, or have their existing involvement extended, to allow ER on a disposal of their interest(s). However, the one year ownership requirement means that the most important point of all is that it is never too early to seek and implement the right advice. You will then have peace of mind in knowing that in the event of an unexpected but attractive approach being made for your business, you will be in a position to take that forward, because you have already secured the best possible CGT outcome.