Entrepreneur’s relief and resignation
Understanding Entrepreneurs’ Relief and Resignation Timing
Entrepreneurs’ Relief, now called Business Asset Disposal Relief, allows business owners to pay a reduced 10% Capital Gains Tax (CGT) when selling shares or business assets. However, to qualify, specific criteria must be met, particularly regarding employment status at the time of disposal.
One crucial rule is that you must be a director or employee for at least 12 months before selling your shares. If you resign before selling, you may lose eligibility for the relief.
Key Criteria for Entrepreneurs’ Relief
To claim Entrepreneurs’ Relief and resignation correctly, you must:
- Own at least 5% of shares and voting rights in the company.
- Be an employee or director for at least one year before the sale.
- Ensure the business is a trading company or part of a trading group.
If you resign before selling your shares, you could fail the employment requirement, meaning higher tax rates on your gains.
The Impact of Resigning Too Early
Many business owners mistakenly resign before selling their shares, assuming this has no tax consequences. However, doing so can mean losing the 10% CGT rate and instead paying up to 20% on gains.
To ensure you qualify for Entrepreneurs’ Relief, plan your resignation and share disposal strategically. Seeking professional tax advice before resigning can help maximise tax efficiency.
How We Can Help
At Lewis Brownlee, we specialise in Entrepreneurs’ Relief and resignation planning. We can help ensure your employment status and timing align with relief eligibility.
We offer a free introductory meeting to discuss your options, helping you avoid costly tax mistakes. Help is at hand!
For expert guidance, contact us today. We’d be happy to see how we can help!
Understanding Entrepreneurs’ Relief and resignation is crucial for tax efficiency. With careful planning, you can minimise tax liabilities and ensure you qualify for maximum relief.