RSS feedsMy client has already realised gains in excess of £1m in 2006/07 and is contemplating further disposals. What does this mean in light of the chancellor's recent announcement of capital gains tax relief for entrepreneurs? Will this relief be available?
This is an area that has caused a great deal of confusion among professional advisers.
'Entrepreneurs' relief' targets the owners of small businesses and applies when they come to sell their business. In addition to the owners, all employees and company directors who invest a 'material' stake in a qualifying company will be entitled to the relief. A material stake means means ownership of a minimum of 5% of shares in the company and control of at least 5% of the voting rights. The relief applies to gains arising on disposals of trading businesses and certain disposals of shares in trading companies.
HM Revenue & Customs has only recently confirmed that the lifetime allowance - so called because you can only use it once - begins to accumulate from 6 April 2008. Gains realised beforehand do not restrict the availability of the relief.
This means that an individual will pay 10% on the first £1m of capital gains on qualifying assets and 18% on gains in excess. In the case of your current client, this means that the pressure is now off and they will pay CGT at only 10% on their future gains of up to £1m if all the conditions are met.
If your clients are 'business angels' hoping to take advantage of the relief, they must be an officer or employee of the company throughout the one-year qualifying period for entrepreneurs' relief to apply.
Derek Allen is director of tax at ICASwww.icas.org.uk
