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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Entrepreneurs’ Relief: broad outline

Entrepreneurs’ Relief is due, subject to meeting certain conditions, in respect of capital gains arising on ‘material disposals of business assets’. These are:

  • a disposal of the whole of a business, carried on by an individual alone or in partnership,
  • a disposal of part of a business carried on by an individual alone or in partnership, see CG64010,
  • a disposal by a partner of the whole or part of his or her interest in a partnership,
  • a disposal of an asset previously used in a business carried on by an individual alone or in partnership within 3 years after the business has ceased, CG63975,
  • a disposal of shares in (or securities of) a company which is

either a trading company or a holding company of a trading group, see CG64055+, where the individual

* is an officer or employee of the company or of one or more companies in the group, see CG64110, and either
* held the required proportion of the ordinary share capital of the company and was able to exercise the required proportion of voting rights in the company, or
* for disposals on of after 6 April 2013, the shares were acquired by the individual on or after 6 April 2012 on the exercise of an option under the Enterprise management Initiative (EMI) scheme.
  • a disposal of an asset (including company shares and securities) by certain trustees where

    • there is a qualifying beneficiary
    • and, broadly, where a disposal of the asset by the qualifying beneficiary would have qualified for Entrepreneurs’ Relief - see CG63985.
  • a disposal of an asset,

    • held by a partner or company employee personally
    • and used in the partnership business, or the business of the company (or group) employing the individual
    • and where the disposal was ‘associated’ with a material disposal by the partner or employee under one of the circumstances above - see CG63995.

Qualifying period

To qualify for Entrepreneurs’ Relief an individual taxpayer has to meet all the qualifying conditions THROUGHOUT a period of ONE YEAR ending with:

  • for the disposal of the whole or part of a business, or of shares in (or securities of) a trading company or the holding company of a trading group- the date of the material disposal, or
  • for a disposal following the cessation of a business, or of shares in (or securities of) a company that has ceased to be a trading company or a member of a trading group - the date the business ceased.

see CG63975+.

In the case of a disposal by trustees the individual who is the qualifying beneficiary has to meet all the qualifying conditions THROUGHOUT a period of ONE year ending not earlier than THREE years before

  • for a disposal of shares in (or securities of) a trading company or the holding company of a trading group - the date of the disposal
  • for a disposal following the cessation of a business - the date the business ceased.

See CG63985 for further guidance on disposals by trustees.

Claims

Entrepreneurs’ Relief is given upon a claim being made either by the individual or, in the case of trustees, jointly by the trustees and the qualifying beneficiary. See CG63970.

Amount of relief

For disposals from 6 April 2008 to 22 June 2010 gains which qualify for Entrepreneurs’ Relief are reduced by 4/9th. The net amount is the chargeable gain and charged at the single rate of CGT.

For disposals occurring on or after 23 June 2010 gains which qualify for Entrepreneurs’ Relief are charged at a rate of 10%.

The amount of Entrepreneurs’ Relief is subject to a ‘lifetime’ limit of gains in respect of which the relief can be given. The amount of this ‘lifetime limit’ is -

  • for disposals from 6 April 2008 to 5 April 2010 - £1 million.
  • for disposals from 6 April 2010 to 22 June 2010 - £2 million, and
  • for disposals on or after 23 June 2010 - £5 million
  • for disposals on or after 1 April 2011 - £10 million

of gains that can qualify for Entrepreneurs’ Relief. So, for any qualifying disposal, the amount of relief available depends on:

  • the extent to which gains relate to disposals of business assets (as opposed to investments), and
  • the total amount of relief given on any previous qualifying disposals.

The changes to the lifetime limit are not retrospective. If a person made a qualifying disposal of £3 million in 2009 and Entrepreneurs’ Relief applied to reduce £1 million of those gains then the relief due is not affected by the later increases in the lifetime limit. If that person made a further qualifying disposal after the limit increased relief would be available within the new limit, taking into account the £1 million already used. See CG64125 for further detail including an example.

Disposals eligible for relief

Any kind of disposal which gives rise to a capital gain will qualify for relief if the relevant conditions are met. Such disposal may be

  • a sale
  • a gift
  • a transfer (for example, at undervalue)
  • where a capital distribution is received in respect of shares in a company (TCGA92/S122), see CG57800+ or
  • where a capital sum is derived from the asset (TCGA92/S22), see CG12940+.

Entrepreneurs’ Relief is not available against gains arising on the disposal of investment assets held by a business, see CG64125.

Share for share exchanges

There are special provisions where shares (or securities) are exchanged for shares (etc) in another company, see CG64155 or for Qualifying Corporate Bonds (QCB’s), see CG64160.

Interaction with other reliefs

The order of relief depends on the way in which they work. The guidance at CG60210+ explains the order in which the various reliefs which may be available on the disposal of a business or business asset are given.

See also CG64135, CG64136 and CG64137.