For the second time in a year, George Osborne has “made a huge hike” in entrepreneurs’ relief (ER). Business owners can claim it to reduce the tax on any gain from selling a business, says Tax Tips & Advice. As of 6 April, the limit is £10m.
If you are thinking of selling up, however, make sure your affairs are properly organised beforehand. Many people transfer ownership of shares in their company to non-earning spouses in order to save income tax. But this may be a bad idea if you sell up shortly afterwards.
To qualify for ER you must hold 5% or more of the ordinary share capital for at least 12 months and be either a director or company secretary of the company, or one of the companies in the same group.
So say you are selling your company for £5.6m. You and your wife own 50% of the shares each, but your wife hasn’t owned hers for 12 months at the point of sale. While your £2.8m gain would only be taxed at 10%, your wife’s would be taxed at 28%. By simply returning her 50% before the sale contracts are signed, however, the CGT bill could be £500,000 lower.