Entrepreneur’s relief – associated disposals
Entrepreneurs’ Relief: Associated Disposals Explained
Entrepreneurs’ Relief, now known as Business Asset Disposal Relief, offers a reduced Capital Gains Tax rate of 10% on qualifying business disposals. A key aspect is the treatment of associated disposals, such as when a business owner sells assets like trading premises held personally but used by their company. To qualify, specific conditions must be met.
Shareholding Requirements for Associated Disposals
For an associated disposal to qualify for Entrepreneurs’ Relief, the individual must dispose of at least 5% of their shareholding in the company. This means that if you own 100% of the company, selling 5% of your shares alongside the asset disposal would suffice. However, in cases where ownership is shared, calculations become more complex.
Example:
- If you own 60% and your spouse owns 40% of the company, disposing of 5% of the total shares equates to 8.3% of your personal shareholding. Therefore, you would need to sell 8.3% of your shares to meet the requirement.
It’s crucial to ensure that the disposal aligns with these shareholding thresholds to qualify for the relief.
Beware of Anti-Avoidance Rules
When planning associated disposals, be mindful of anti-avoidance provisions designed to prevent exploitation of Entrepreneurs’ Relief. Transactions that appear artificial or primarily tax-motivated may attract scrutiny from HM Revenue and Customs (HMRC). Engaging in genuine commercial activities and maintaining thorough documentation can help mitigate this risk.
How We Can Help
Navigating the complexities of Entrepreneurs’ Relief and associated disposals requires careful planning. At Lewis Brownlee, we offer expert guidance to ensure your transactions comply with HMRC regulations and maximise available reliefs. For personalised advice, please contact us.
Understanding the intricacies of Entrepreneurs’ Relief associated disposals is essential for effective tax planning. By meeting the necessary conditions and being aware of potential pitfalls, you can optimise your tax position during business asset disposals.