HMRC have published the results of recently conducted research into Entrepreneurs relief (ER) to see whether it acts as a motivating factor in individuals’ business, investment, retirement, and tax planning decisions.
Entrepreneurs' Relief (ER) is a Capital Gains Tax (CGT) relief which is available on qualifying business disposals.
- It is available to individuals and not to companies.
- It does not apply to investment assets.
- It reduces the rate of CGT on the disposal of assets to 10% from the standard rate of CGT of 10% or 20%
- It applies only on the disposal of qualifying business assets.
HMRC surveyed 1,700 people split into three different groups and found that:
- The main reasons for selling the assets was to release funds for personal use (39%), to fund retirement (33%), reinvestment through release of assets (29%) and a company sale (27%).
- 39% had claimed ER to reduce their tax charge on a disposal.
- Over half of those who had claimed ER in the past 5 years (Group 1) were between the ages of 45 and 64 and most were selling their business or shares in their company, or closing their business.
- 25% of them included Goodwill in the list of assets within the ER claim.
- Most were aware of ER when they sold the business or ceased trading, but less than 20% were aware at the point of initial investment. Those who were so aware tended to be serial investors i.e. they were looking to invest again having made an ER claim.
- Most faced no barriers whilst claiming ER but there was uncertainty around eligibility.
- This was the only group who were influenced to any extent by ER or other CGT reliefs (such as taper relief) in making investment decisions.
- 65% of these claimants had used an agent for the entire claim process.
- Of those who had not claimed in the past 5 years and had instead paid the full rate of Capital Gains tax (Group 2), most were over 65 years old and were selling residential property.
- Less than 25% of these individuals were aware of ER when they were planning to sell.
- 41% had taken no advice in respect of their gain.
- 44% were identified as having potentially eligible assets including personal assets used by a partnership or company they had shares in and Furnished Holiday letting businesses.
- A younger group (a third of whom were aged under 45) (Group 3) who had not paid any CGT in the past five years had the lowest awareness of ER despite 65% of them being self-employed.
Top tips:
- Whilst this research shows that those for whom ER has been most relevant are the most informed, they are not all taking professional advice and some are dealing with claims themselves.
- It is concerning (given the level of potential claimants), that the level of knowledge and willingness to take advice was so low amongst Group 2.
- The recent case of Merrie v HMRC where the tribunal upheld £95,112.79 in penalties for inaccuracies in a self-assessment return: is a reminder of the consequences of failing to take advice; in that case it was the advisor's fees which put the client off.
Links:
Entrepreneurs relief subscriber guide
CGT reliefs: disposal of a business or its assets
Selling the business: where do I start?