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Now officially known as Business Asset Disposal Relief, Entrepreneurs’ Relief is a way for business owners to pay less capital gains tax (CGT) when selling all, or part, of their business.
Read on to find out more about Entrepreneurs’ Relief, including if you are eligible and how to claim it.
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What is Entrepreneurs’ Relief?
Entrepreneurs’ Relief – now called Business Asset Disposal Relief – is a tax break available to individuals selling their businesses, which means they don’t need to pay as much capital gains tax (CGT).
Whenever you sell or dispose of an asset, such as your business or your shares in a company, you will need to pay CGT on any profit, or gain, you make.
As part of the 2024 Autumn Budget, Rachel Reeves, the Chancellor, announced changes to CGT and Business Asset Disposal Relief.
For disposals on or after 30 October 2024, the basic rate of CGT has increased from 10% to 18%. For higher- or additional-rate taxpayers, CGT on gains from residential property and other chargeable assets has increased from 20% to 24%.
Business Asset Disposal Relief exists to incentivise entrepreneurship by reducing the CGT burden for anyone selling their own business. You can claim a total of £1 million in Business Asset Disposal relief over the course of your lifetime.
Thanks to Business Asset Disposal Relief, in the 2024/2025 tax year, people selling their own business only have to pay CGT at a rate of 10% when disposing of qualifying assets.
However, the 2024 Autumn Budget contained the news that Business Asset Disposal Relief will become less generous over the coming years:
- For disposals made on or after 6 April 2025, people selling their own business will pay CGT at a rate of 14%.
- For disposals made on or after 6 April 2026, people selling their own business will pay CGT at a rate of 18%.
» MORE: What is Capital Gains Tax?
Can I claim Entrepreneurs’ Relief?
Selling all or part of your business
In order to be eligible for Business Asset Disposal Relief when selling all or part of your business, you must:
- have been a sole trader or business partner for at least two years up to the date of the sale
- have owned the business for at least two years up to the date of the sale
These rules mean that if you were to become a partner in a business, you would only qualify for Business Asset Disposal Relief after at least two years in that position.
Closing your business
You can also qualify for Business Asset Disposal Relief when closing your business, rather than selling it. In order to be eligible, you must:
- have been a sole trader or business partner for at least two years up to the date of the sale
- have owned the business for at least two years up to the date of the sale
- dispose of your business assets within three years of the sale
So, just like with selling all or part of your business, there are limits on when you can begin to benefit from Business Asset Disposal Relief in regards to closing a business.
Selling shares or securities
At the most basic level, to qualify for Business Asset Disposal Relief when selling shares or securities, you must:
- be part of a company that has trading as its main activity, or work for a holding company of a trading group
- have been an employee or office holder of the company for at least two years up to the date of the sale
There are then further criteria to qualify for Business Asset Disposal Relief, depending on whether or not your shares are part of an Enterprise Management Incentive (EMI).
EMIs are schemes available for companies with assets worth £30 million or less. It can allow employees to purchase shares options up to the value of £250,000 over three years without needing to pay income tax and National Insurance on those shares.
If your shares are from an EMI, then you need to meet the following two rules:
- You bought the shares after 5 April 2013.
- You were given the option to buy them at least two years before selling them.
If the shares are not from an EMI, then:
- the business must be a ‘personal company’ for at least two years before the sale, meaning you have at least 5% of shares and voting rights
- you must be entitled to at least 5% of either the profits available for distribution and assets if the company is wound up, or the disposal proceeds if it is sold
Due to the different eligibility rules surrounding Business Asset Disposal Relief and Enterprise Management Incentives, make sure you know where your shares are coming from before applying for a tax break.
Selling assets you lent to the business
To be eligible for Business Disposal Asset Relief when selling assets you lent to the business, you must have:
- sold at least 5% of your part of the business partnership, or shares in a personal company
- owned the assets in question, but let the business use them for at least one year up to the date of the aforementioned sale of your part of the business or shares in the personal company, or alternatively the date the business closed
Trustees
It is also possible to qualify for Business Asset Disposal Relief if you are a trustee and are selling assets that have been held in the trust.
How to claim Entrepreneurs’ Relief
It is fairly simple to claim entrepreneurs’ relief. If you are eligible for Business Asset Disposal Relief, you can claim it by either:
- including it in your self-assessment tax return
- filling in Section A of the Business Asset Disposal Relief helpsheet
What if I do not qualify for Entrepreneurs’ Relief?
If you do not qualify for entrepreneurs’ relief, and you are a sole trader or in a business partnership, then you will have to pay capital gains tax at normal rates on any gains you make when you dispose of a business asset.
If you are a limited company, meanwhile, you will not qualify for entrepreneurs’ relief. Instead, you will need to pay Corporation Tax on any gains you make from selling or disposing of a business asset.
You can also check to see if you qualify for other forms of tax relief, such as Business Asset Rollover Relief, Incorporation Relief, and Gift Hold-Over Relief.
Dive even deeper
Dissolving a Company: What Does it Mean?
by Jeff Salway
Are UK Business Loan Repayments Tax-Deductible?
by Peter Adams