Entrepreneur's Relief
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Published: 5 Jul 2016
Will you be taking full advantage of tax reliefs when you sell your company?
A number of opportunities in saving tax are missed because, quite simply, the measures are not in place at the time the company’s shares are sold. These measures are legitimate and easy to implement and do not require complicated and costly tax avoidance schemes.
For instance, a classic husband and wife company may have the share interests divided equally between them to take full advantage of twice the amount of lower rates of tax on dividend income and maintain equal estates for inheritance tax purposes.
Entrepreneur's Relief
However, if they wish to sell the company, rather than pass it on to the next generation in their wills, and only one of the spouses is a director or employee as well as a 50% shareholder for a year before the sale, the other spouse will not qualify for Entrepreneur’s Relief on the sale of his or her shares.
Entrepreneur’s Relief reduces the rate of tax payable on the gain from 20% to 10%. It is simple enough to make the other spouse a director or employee to achieve this saving.
The key is to plan arrangements for selling your company well in advance, say 2 to 3 years, so you do not live to regret your inaction.
In the words of our war time leader, Winston Churchill, “Failing to plan is planning to fail”.
