You may have heard that changes to entrepreneurs’ tax relief rules will enable business owners to finance a business without having to be an employee of that business.
What conditions need to be met?
However the new rules are complicated and relief can only be claimed providing certain conditions are met. These mainly relate to the timing both before and after any claim for relief to be granted.
What might it be worth?
Entrepreneurs’ relief benefits business owners if they are disposing of a business or part of a business or business asset. As the relief can reduce the effective rate of tax from 28% to 10%, it can be worth up to £1.8 million in tax savings for each individual.
Who can benefit?
Now this relief has been extended to external investors in unlisted trading companies. This move, announced in the most recent budget will enable individuals to finance a business and obtain the 10% entrepreneurs’ rate without having to work in the business.
How will the new rules work?
The new rules will apply to newly issued shares purchased on or after 17 March 2016, providing they are held for a minimum of 3 years from 6 April 2016, and subject to a separate lifetime limit of £10 million of gains.
The relief is not mandatory and the time both before and after your claim are important. The conditions for entrepreneurs’ relief to be granted need to have been met for at least twelve months prior to disposal and making your claim. In addition, if you claim is related to business assets, then the disposal needs to have occurred within three years of ceasing trade or partnership.
Like most tax matters, the issue is complex and the relief can only be claimed providing certain conditions are met. It is important not to assume that you qualify because another individual who is selling their part of a business does. To ensure you receive appropriate advice so that planning opportunities can be identified in good time, please don’t hesitate to contact IN Accountancy. We are accountants in Stockport who will provide expert advice about the pitfalls that you can face in this area. Ring us on 0161 456 9666.