Entrepreneurs’ Relief

Frequently Asked Questions

1) Is the £1 million lifetime limit retrospective? / Does the lifetime limit include past disposals?

No. Entrepreneurs' relief must be claimed. Until a claim is made the £1 million lifetime allowance remains untouched. Claims can be made for disposals on or after 6 April 2008 providing the gains qualify for the relief.

2) I sold shares in my company in July 2007 in return for qualifying corporate bonds redeemable over 5 years. My gain selling on the shares is held over until the QCBs are disposed of. Will I qualify for entrepreneurs’ relief when the QCBs are redeemed after 6 April 2008?

Entrepreneurs’ relief will be available in respect of the held-over gains that become chargeable on or after 6 April 2008 when the qualifying corporate bonds are redeemed (or otherwise disposed of) if the original sale of the shares would have met the conditions for the relief if it had taken place after 6 April 2008.

3) I have a number of flats that I currently let out – will I qualify for entrepreneurs’ relief?

Gains on disposals of let residential properties will not qualify for entrepreneurs’ relief.

4) I am letting a commercial property which currently qualifies for business asset taper relief. If I sell it will I get entrepreneurs’ relief?

By itself a disposal of let property will not qualify for entrepreneurs’ relief. There must be a disposal of the whole or part of a trading business, and commercial property letting is not a trading activity.

However, if the property is let to a trading partnership of which you are a member, or to a trading company of which you are an officer or employee, you may be entitled to a measure of relief on disposal of the property if that disposal is a associated with a disposal of your interest in the partnership, or of your shares in the company and that other disposal meets all the conditions for the relief.

5) I have owned a farming business since July 1987. I intend to sell off some land which has been used in the business – will I qualify for entrepreneurs’ relief?

In order to qualify for entrepreneurs’ relief there must be a disposal of the whole of part of the trading business. The sale of an asset in isolation will not qualify for the relief.

HMRC’s Capital Gains Manual discusses what constitutes the disposal of the whole or part of a business at paragraph CG63530 onwards. These paragraphs relate to the old retirement relief, but we consider the same principles will apply.

6) Do furnished holiday lettings qualify for the relief?

A business of commercial letting of furnished holiday accommodation in the UK will be treated as a trade for the purposes of entrepreneurs’ relief. So the relief will be available provided that all the qualifying conditions are met.

7) I am an employee of a company in which I own 4.9% of the ordinary share capital. Will this be rounded up so that I could qualify for entrepreneurs’ relief?

No. The holding must be of at least 5% of the ordinary share capital (and give at least 5% of the voting power in the company) throughout the qualifying period.

8) I already hold over 10% of the shares in the company. If I acquire another 4% of the shares and sell the whole 14% 6 months later, can I get entrepreneur’s relief on the whole 14%, or only on the 10% I held for the whole of the one year qualifying period?

Relief will be available in respect of the whole 14% holding if the qualifying conditions are met. The requirement is that a 5% stake is held throughout the qualifying period. The particular shares or securities disposed of do not have to be held throughout that period.

9) I am the director of a trading company in which I own 50% of the shares. Do I have to sell all of my shares in order to qualify for entrepreneurs’ relief?

No. A sale of some of the shares will qualify for entrepreneurs’ relief, providing the conditions for the relief are met.

10) I sold my business in July 2003 and reinvested the profits into EIS shares. If I sell my shares after 6 April 2008 will I qualify for entrepreneurs’ relief?

Entrepreneurs’ relief may be available in respect of the deferred gain that comes into charge on the sale of your EIS shares, if the sale of your business would have qualified for entrepreneurs’ relief if that relief had been available in July 2003.

11) I sold my trading company in June 2007 in exchange for loan notes that are not qualifying corporate bonds. Will I qualify for entrepreneurs’ relief if those loan notes are redeemed in June 2008?

Entrepreneurs’ relief will be available only if, throughout the period of one year leading up to the redemption of the loan notes:

• the company that issued the loan notes is a trading company or the holding company of a trading group
• you own at least 5% of the ordinary share capital and that holding gives you at least 5% of the voting rights in that company, and
• you are an officer or employee of that company or, if it is a holding company, of a company in the same group as the holding company.

12) Can non-executive directors and the company secretary qualify for entrepreneurs’ relief?

Non-executive directors and the company secretary are all officers of a company and will be able to qualify for the relief provided that all the other qualifying conditions are also met.

13) How many hours does an officer or employee have to work to qualify for the relief?

There are no rules about the working hours of officers and employees. The condition is only that the individual is an officer or employee of the company throughout the one year qualifying period. However in order to qualify for relief all the qualifying conditions have to be met.

14) If in July 2008 I exchange my shareholding in my trading company for shares or loan notes of another company and any gains will be deferred or rolled over, will I qualify for entrepreneurs’ relief when the shares or loan notes are sold or redeemed?

Entrepreneurs’ relief will be available (provided the conditions for relief are satisfied) but the way it will be given depends upon whether the loan notes are qualifying corporate bonds (QCBs) or not.

If the exchange is for shares of the other company, or for loan notes that are not QCBs, entrepreneurs’ relief will be available only if you choose for the gain to be chargeable to CGT for the tax year in which the exchange of shares for loan notes takes place. So if you exchange shares for shares or non-QCB loan notes in July 2008, entrepreneurs’ relief would be available only if the gain (net of the relief due) was charged for the year 2009-09, even if the shares or loan notes are not sold or redeemed (or otherwise disposed of) until a later tax year. If you do not elect for this treatment the gain could be deferred until the year in which you dispose of the shares or loan notes, but in that case no entrepreneurs’ relief could be claimed if you do not meet all the qualifying conditions for relief in respect of a disposal of shares in or securities of the company that issued them.

If the exchange is for loan notes that are QCBs, there will be no immediate charge to capital gains tax in respect of the shares. Entrepreneurs’ relief will be available on the gains that are brought into charge at the time the loan notes are redeemed or otherwise disposed of.

15) Can I claim entrepreneurs’ relief on a disposal in September 2008 and defer the net gain (after entrepreneurs’ relief) by investing in EIS shares?

Yes, if the disposal meets the conditions for the relief to apply.