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The lifetime limit for Entrepreneurs Relief “ER” has increased to £5m
October 2010
Tax Partner
Introduced in 2008, ER replaced Taper Relief which provided a 10% CGT rate for qualifying business asset disposals. Although narrower in its application, ER preserves this 10% rate.
Originally £1m, the limit increased to £2m for disposals after 5 April 2010. ER originally reduced qualifying gains by 4/9ths, resulting in an effective 10% tax rate; the balance of the gain being chargeable at 18%.
As expected, the budget raised the main capital gains tax rate to 28% from 23 June 2010. This change meant that the 4/9ths reduction would no longer achieve an effective 10% tax rate. So, instead qualifying gains are now simply charged at 10%.
Anyone who has made qualifying gains above the previous £2m limit before 23 June 2010 (£1m limit before 6 April 2010), will not qualify for additional relief in respect of that previous disposal.
However, if further qualifying gains are made on or after 23 June 2010 a claim can be made up to the balance of the new £5m lifetime limit.
This is very welcome to those who have used their old lifetime limit and still own business assets, such as company shares or an interest in a partnership. It will also provide additional relief to those who had sold a business prior to 23 June 2010 and still have assets used in that business to sell.
If you are in either situation described above you should consider seeking further advice.
Going forward, this increase in the lifetime limit will mean that individuals and trustees who make qualifying disposals will pay 10% on more of their gain, and is a move to more generous business asset tax relief.
