Incentives to sell – business owners and investors
Entrepreneurs relief was an incentive designed to help entrepreneurs to start a new business by reducing the amount of CGT payable when they sold a business, or certain business assets where the qualifying conditions were met.
The name changed in 2020 to Business Asset Disposal Relief (BADR) but there was no change to how relief benefits business owners looking to minimise their CGT liability when selling >Time to make an exit: preparing your business for sale
Providing the qualifying conditions are met, BADR enables the seller to reduce their CGT liability to 10%.What’s more there is no limit to the number of times you can claim this relief – there is a lifetime cap of £1,000,000.
When selling the whole of or part of your business, to qualify you must be a business owner or a business partner for the duration of the qualifying period. You also need to have owned the business for at least two years.
If you are selling shares, you don’t need to be the business owner to qualify but you must have been an employee and held the shares in the trading company (or holding company of a trading group) for the qualifying period. Conditions do apply. There is one notable exception to the qualifying conditions: investor relief.
Investors relief, introduced in 2016 to incentivise individual investors to purchase shares in non-listed trading businesses. This was part of the UK Governments aim to encourage new and more investment in high growth start up and early stage businesses looking to scale up but who find funding hard to come by from traditional funders and lenders.
Investors relief is also a good option for those who have used up their other tax reliefs and for new companies that can’t access other forms of relief such as SEIS and EIS >Enterprise Investment Scheme
Capital gains made by investors are only taxed at 10% if conditions are met – these conditions are broadly like the conditions for BADR although there are a couple of minor differences.
If you are business owner considering selling your business or selling a share you should speak to us about your BADR and/or Investor Relief position as it is easy to fall foul of the detailed rules.