If you’re selling a business you own, you may qualify for a special capital gains tax relief called entrepreneurs’ relief, also known as business asset disposal relief.

 

Who can claim entrepreneurs’ relief?

You can claim entrepreneurs’ relief  if:

  • you are a sole trader or partner selling part or all of your business or its assets, or
  • you control at least 5% of the company’s net assets of which you are selling and are entitled to 5% of its distributable profits
  • you sell assets from the above businesses within three years of closing down.

Entrepreneurs’ relief doesn’t apply to property portfolios held within a company structure. So, for example, if you’re a portfolio landlord you couldn’t claim.

There are some extra conditions. You can’t, for example, buy or inherit a business and then immediately sell it. As of 6 April 2019, entrepreneur’s relief is only available to people who have been in qualifying circumstances for at least two years.

Similarly, if you held a property investment business, you couldn’t change the purpose of that business and then sell to qualify for the relief. The only exception is furnished holiday letting businesses, which do qualify for the relief.

Find out more: use HMRC’s helpsheets for more guidance

Are there any other conditions?

If you’re only selling part of a business, then that part business must be capable enough of carrying on as a ‘going concern’ – accountants’ speak for being commercially viable. So if you sold loss-making parts of the business, without the means to continue funding it, this wouldn’t qualify.

If you’re selling a business that has ceased trading, you must do so within three years of the company’s operations ending, too.

The rules can be complex, so if you’re not sure, it’s worth taking advice from a qualified accountant. More details can also be found on HMRC’s website.

How does CGT work without entrepreneurs’ relief?

If you or your business don’t qualify for entrepreneur’s relief, you’ll need to calculate and pay your capital gains bill in the same way as when selling any other asset. You can find out more in our guide to capital gains tax rates and allowances.

You start by working out the gains you make on the sale of your business.

This means you take the sales price, and deduct what you paid for it, as well as any investments in the business, and any costs relating to buying or selling it.

Once you have that, you deduct your personal allowance. For 2021-22 and 2022-23, you can earn up to £12,300 in capital gains free of tax, and couples can pool their allowances.

You’ll pay CGT on any gain above this threshold – charged at 10% for basic-rate taxpayers, and 20% for higher-rate taxpayers.

Bear in mind that your capital gain will count when working out your tax bracket for the year, so even if you’re a basic-rate taxpayer, a large capital gain can push you into paying the higher rate.

Find out more: small business tax: what you need to pay – if you’re a small business owner, there are several other taxes you’ll need to consider. You can find them all in this guide.