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.
