The definition of 'Entrepreneurs relief'

Entrepreneurs in the UK can benefit from Entrepreneurs’ Relief when selling their stake in the business, if they hold more than 5% of the equity and have been involved in the company for over one year. It is available for employees and directors alike, providing that they have met the criteria outlined (see more below).

By law, UK entrepreneurs have to pay Capital Gains Tax on the profits made from the closure or sale of the company. By taking advantage of the Entrepreneurs’ Relief, Capital Gains tax will be charged at a much lower rate of 10%. Initially capped at £2million, since review in 2011, Entrepreneurs’ Relief has been capped at £10million lifetime limit.

Please find the full list of criteria that needs to be met below:

  • You either work as an employee or a director of the company
  • You must be an individual
  • You must have at least 5% of the equity of the company and 5% of the voting rights
  • You must have owned this share (>5%) for at least 12 months
  • There is a £10million lifetime limit
  • Relief must be claimed within 12 months of the 31st January of the tax year in which the company was either sold or closed
  • This is available even if the company has gone through a Member’s Voluntary Liquidation (MVL)