Pay lower rates of tax
Entrepreneurs’ relief allows business owners to pay a lower rate of capital gains tax on the proceeds of business sales. The entrepreneurs Capital Gains Tax rate, for qualifying disposals, is effectively 10% for the first £10M of business disposals.
Soletrader with £60K annual taxable profits
A local builder has been trading a sole trader since January 2006. His taxable profits are approximately £60,000 per year. He decided to incorporate on 6 April 2011.The goodwill that will be sold to the Limited Company has been valued at £100,000. Taking advantage of Entrepreneurs Relief, his capital gains tax liability would be £8,990 (an effective rate of less than 10%).
The £100,000 would be credited to the builders loan account with the company which can be drawn down TAX FREE.
A two partner partnership with £500K annual taxable profits
A two partner partnership has annual taxable profits of £500,000 per year. At this level of profit, each partner would have an annual income tax liability of approximately £110,000 (£100,000 of the profit would be taxed at the 50% upper rate level = £50,000 tax). If the partnership incorporated and the goodwill was sold to the Limited Company at say a value of £2.5M, the individuals would benefit from Entrepreneurs Relief and would pay tax on the capital gain at a rate of 10%. £1.25M each would be credited to the individuals Loan Account with the company and could be drawn down TAX FREE.
Download: our Entrepreneurs Tax Relief Brochure
Call: 0151 644 4848
LBW Chartered Accountants is the trading name of Jimalice Ltd, Company No 07105303. Company Registered in England & Wales Enterprise House, The Courtyard, Old Courthouse Road, Bromborough, Wirral, CH62 4UE