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Business Reliefs

Entrepreneurs relief
Entrepreneurs relief applies on the disposal of a business and certain trading company shares. Gains
on assets qualifying for the relief are taxed at 10%. There is a limit of 10 million of gains on which
entrepreneurs relief can be claimed. This is a lifetime amount applicable to disposals made on or
after 6th April 2008.
Conditions for entrepreneurs relief

A disposal of whole or part of a business owned by the individual for at least one year ending
with the date of disposal and the assets disposed should be used for business purpose at the
time of cessation
The disposal of the asset or shares must be made within three years from the date of
cessation of business
An election for entrepreneurs relief must be made one year from the 31st January following
the tax year of disposal
For disposal of shares and securities individual should have at least 5% shareholding and

must be an officer or employee of the company for a period of one year ending with the
date of disposal
Operation of the relief

Where at the time of disposal of business assets results in gains and losses, they should be
netted off to give a net amount
Capital gains qualifying for entrepreneurs relief should be taxed first before other gains.
The individual may use annual exempt amount first against gains not qualifying for
entrepreneurs relief.

The replacement of business assets ( Rollover relief )


The gain arising on the disposal of an asset (old asset ) can be rolled over against the cost of
acquiring a replacement business asset (new asset). The gain is then deducted from the cost of the
new asset. This reduced cost is called base cost is used when the new asset is subsequently sold.
To claim rollover relief the following conditions should be met

Both the old and new asset should be used only in the trade
The old and the new assets should fall within one (but not necessarily the same) of the
following classes:
o Land and buildings ( if used partially for business, the business part will qualify )
o Fixed (immovable)plant and machinery
o Goodwill
The new asset should be acquired within the period one year before or three years after
disposal of the old asset

Full rollover relief is only available if the all of the proceeds from the disposal of the old asset is
invested in the new asset. Where only part of it is reinvested, a gain equal to the amount not
reinvested or the full gain, if lower, will be chargeable to tax immediately
Where the replacement asset is a depreciating asset ( any asset with a useful life of 60 years or less,
for example leasehold land and building and fixed plant & machinery ) the gain is not rolled over by
reducing the cost of the replacement asset. Instead the gain is deferred ( delayed ) until it becomes
chargeable on the earliest of the following:

The disposal of the replacement asset


The date the replacement asset ceases to be used in the trade
Ten years after the acquisition of the replacement asset (maximum)

Gift relief(hold over relief)


The gift of a chargeable asset gives rise to a chargeable gain which can only be deferred by gift relief.
When gift relief is claimed the person who receive the gift is deemed to acquire the asset for market
value less the deferred gain.
Condition of gift relief

The asset should be used in the business of the donor ( if the asset was used in a company,
the donor should have at least 5% voting rights in that company)
If the asset was used partially for business use during that period, only that part will be
eligible for gift relief
Claim for gift relief should be made within four years of the end of the tax year of transfer
If the gift is shares and securities it should be from an unlisted company and the donor
should have at least 5% voting rights in that company

Partial gift relief

If an asset is sold at undervalue part of the gain (consideration minus original cost ) is
chargeable
The proportion of the gain which qualifies for gift relief on shares is restricted to:
Capital gain x MV of chargeable business assets of the company
MV of chargeable assets of the company