The tax you pay when you sell a business: Entrepreneur Relief Tax

Entrepreneurs' relief, often referred to as business asset disposal relief is a specific capital gains tax (CGT) break that you may be eligible for if you're selling a business you own.

When I see a business, do I have to pay CGT?

The entrepreneurs' relief—recently renamed business asset disposal relief—may enable you to pay a lower CGT rate of 10% on the first £1 million in proceeds if your business qualifies.

How does the entrepreneurs' relief work?

The relief means you will be charged 10% (the basic rate) on the first £1 million your business makes.

For those who are additional or higher rate tax payers (e.g. those who pay 20%), you will have been charged around half of the usual rate.

£1 million is the maximum amount that can be claimed per person, so the allowance applies to you as an individual, not how many business you sell.

Who is entitled to entrepreneurs' relief?

If any of the following apply, you can claim:

• you're selling part or all of your business as a sole trader or partner,
• you possess 5% of the company's distributable profits and at least 5% of the net assets that you are selling,
• within three years of the businesses mentioned above closing, you sell the assets.

What are the conditions?

The relief does not apply to property portfolios held within a company. Therefore, if you are a portfolio landlord, you cannot claim.

You cannot purchase or inherit a firm and then sell it right away. As of April 6, 2019, only those who have been in qualifying conditions for at least two years are eligible for the entrepreneur's relief.

Similarly, if you owned a business investing in property, you couldn't change its purpose before selling to be eligible for the relief. Businesses that rent out furnished holiday homes are the only exception.

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