CGT and Entrepreneur Relief
Important Changes

Capital Gains Tax (CGT) on the proceeds of future business sales has prompted several questions over recent months.

CGT rates typically vary between 18% and 28% for sole traders and partnerships depending on the rate of tax they currently pay.

Owners may be pleased to know that these percentages can be reduced significantly due to a recent increase in the Entrepreneur Relief lifetime limit. With effect from the 6th April 2011 the new limit has been doubled from £5m to £10m. This change makes a huge difference to a number of owners / shareholders and could even off-set the market reduction in multiples being paid compared to those in 2008. Entrepreneurial share owners will now be able to benefit from an additional £900,000 tax saving under the new limit. This will bring the maximum, total value of the relief to £1.8 million for higher rate tax payers.

Entrepreneurs Relief may mean that a vendor potentially pays only 10% tax on the sale proceeds, a significantly lower rate than CGT.

The same tax relief could also apply to any cash sat in the Balance Sheet as net assets.

Every business is different, and it is important that professional advice is sought on all aspects of taxation and tax planning.