CG64130 - Entrepreneurs’ Relief: calculation of the relief - examples
Example 1
K runs a confectioner/tobacconist business for several years. He
then sells it and makes a gain of £38,000 (“relevant
gains”) on the goodwill, but a loss of £8,000
(“relevant losses”) on the premises. Assuming he
qualifies for Entrepreneurs’ Relief it will be applied to the
net gains of £30,000.
The £30,000 will then be reduced 4/9th to £16666.
This will be the “chargeable gain” and is subject to
reduction by other allowable losses and the AEA.
The loss of £8,000 on the premises is not otherwise
allowable.
Example 2
D ran a pharmacy for over 20 years until March 2009. He sold the
whole business as going concern realising a gain £1,250,000.
D had not previously claimed any Entrepreneurs’
Relief. The gain qualifies for relief as a disposal of whole or
part of a business – see CG64015 – and he makes a claim
within the relevant time limit.
D has the maximum relief of £1,000,000 qualifying gains
available, so he is entitled to the whole of his lifetime limit and
will have that amount of his gains reduced by 4/9th. The balance of
the gain of £250,000 will be charged at the rate of CGT (18%
for 2008/9). Assuming that D had no other gains or allowable losses
during the year the annual exempt amount (£9,600 for 2008/9)
will be available.
| Total qualifying gain | £1,250,000 | ||
| Gains reduced by maximum Entrepreneurs’ Relief | £1,000,000 | £1,000,000 | |
| Less reduction of 4/9th | £444,445 | £555,555 | |
| ‘Chargeable gain’ | |||
| Balance of gain not reduced | £250,000 | £250,000 | |
| Total chargeable gains | £805,555 | ||
| Less Annual Exempt Amount | £9,600 | ||
| Gain chargeable at 18% | £795,955 |
Example 3
The facts are as example 2 above except that D only realised a gain on the disposal of the pharmacy of £750,000 all of which qualified for Entrepreneurs’ Relief. In 2010 he started another business as a travel agent which he sold in 2015 realising a gain of £500,000. D makes a second claim for Entrepreneurs’ Relief on this second gain. It qualifies for relief but only £250,000 of the gains will be eligible for reduction as this then uses up the remaining £1,000,000 of D’s lifetime limit.
| Lifetime limit of entrepreneurs’ relief | £1,000,000 | ||
| Gain 1 2008/9 qualifying gain | £750,000 | ||
| Relief remaining | £250,000 | ||
| Gain 2 2015/16 qualifying gain | £500,000 | ||
| Gains reduced by available entrepreneurs’ relief | £250,000 | ||
| Less reduction of 4/9th | £111,111 | £138,889 | |
| ‘Chargeable gain’ - Gain 2 | |||
| Balance of gain not reduced | £250,000 | ||
| Total chargeable gains – Gain 2 | £388,889 |
2015/16 total chargeable gain subject to any available allowable losses and AEA.
