What is Entrepreneurs' Relief?
It’s no secret that everybody wants to try and save on their tax payments and that is exactly what Entrepreneurs’ Relief strives to do for those in full or part control of the assets belonging to a business or the business itself.
The plan was to set up a system that provides people with an incentive to set up and grow their own businesses by allowing reductions on the Capital Gains Tax that comes into play with business disposals.
Essentially, this means that for those who successfully qualify for Entrepreneurs’ Relief, the profit that has amounted from the disposal of their assets is taxed at a reduced rate of 10% rather than the standard rate of 20% or the higher rate of 28%.
What’s more, because Entrepreneurs’ Relief is a lifetime allowance, there is no limit on how many times you can claim. In fact, this has been extended by successive Chancellors in the annual UK budget since the 2008/09 tax year so you can now claim up to £10m of relief during your lifetime.
These claims are made through your self-assessment tax return and must be with HMRC before the annual deadline which is usually 31st January. We have listed deadline dates below to claim by if your business asset was disposed of during either of the last two tax years in the UK
How can I benefit from Entrepreneurs' Relief?
Do you have a company which you intend to close, with asset reserves of £40k? Rather than distribute those reserves to the shareholders as a dividend in the ordinary course of business, and pay income tax on the distribution, allow Marshall Peters to perform this service via a solvent liquidation, known as a Members Voluntary Liquidation (MVL). Asset reserves distributed to shareholders by the Liquidator are treated as a return on capital, and therefore attract capital gains tax rather than income tax. Provided the shareholders meet the qualifying criteria, Entrepreneur’s Relief can then be applied, resulting in just 10% capital gains tax on the funds distributed, rather than income tax of up to 45%.
What is a Members Voluntary Liquidation?
A Members Voluntary Liquidation is a solvent liquidation, where the Liquidator’s duty is to liquidate the assets and distribute the proceeds to shareholders. Unlike its namesakes, Creditors Voluntary Liquidation and Compulsory Liquidation (where the company is insolvent), the MVL is a process of winding down a solvent (asset rich) company in the best possible manner for shareholders.