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If You’re Selling Your Business, How Long Can You Count on Entrepreneur’s Relief?

If you’re at the stage where you’re considering selling your business as part of your exit strategy, how long can you count on Entrepreneur’s Relief being available?

ORJ’s corporate and commercial law specialist, Lorraine Smith, responds to a question a number of clients have asked, given the current political uncertainty.

It has been government policy for many years to incentivise entrepreneurs to grow their business by reducing the level of capital gains tax applied to any increase in value of the business, which has accrued during their ownership.

This incentive is known as Entrepreneur’s Relief or ER for short.

Subject to the following criteria on a sale of whole or part of a trading business, the tax rate applied is just 10% on qualifying business assets on lifetime gains of £10million. It is usually available to people selling a trading business as a going concern (whether a limited company, an LLP, a Partnership or Sole Trader), provided that the seller has been an employee, director or partner of the business for at least a year before the sale and where that person owns a share and has voting rights of greater than 5%.

Lorraine Smith is a Corporate and Commercial Law specialist

The relief halves the tax rate on gains above the basic rate band. There is still strong demand for well-run private companies in many industrial sectors, particularly in IT and the professional sectors such as Dentistry and Veterinary.

Furthermore, the volume of business sales in the region, since the Brexit referendum, has shown little, if any, signs of slowing down. Most clients tell us that their decision to sell is typically an emotional one. However, we suggest the political climate may now be a factor to take into account if the decision is finely balanced.

Given the unprecedented demands for government money and based on an analysis of comparable tax rates under previous governments, it’s very hard to see Entrepreneur’s Relief remaining.

For business owners thinking about a future sale, timing could now be higher on the agenda.

If you would like to discuss any aspect of business-related law, please contact Lorraine Smith on 01785 223440 – email Lorraine.Smith@orj.co.uk

ORJ’s lawyers offer expert advice in all matters related to business law. This includes commercial litigation, intellectual property, commercial property, IT, insurance litigation, construction law and corporate business law.

ORJ also has one of the largest family law teams in the Midlands, handling all matters involving separation and divorce. The firm also boasts one of the most professional property conveyancing teams in the region, servicing the needs of private individuals, the region’s top estate agents and national housebuilders.

For further information, contact Patrick Tedstone on 01785 223440 – email Patrick.tedstone@orj.co.uk