The initial conditions for Entrepreneur’s Relief were that the taxpayer needed to own 5% of shares in a firm, with a lifetime relief limit of £1m which could be claimed. In the March 2010 Budget, the limit was increased to £2m. The limit was then increased again in June 2010 to £5m. Because the capital gains tax rate is now 28%, the value of Entrepreneur’s Relief has gone from £80,000 to £900,000.
To make best advantage of the relief available:
• Top up employee/director shareholdings to ensure they pass the 5% threshold;
• Fragment holdings within a family;
• Combine smaller (2-3%) holdings between family members so they can qualify;
• If you are selling a business unexpectedly, and some of the shareholders do not qualify for the relief, consider planning for future relief.