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Tax Chat

Entrepreneurs relief on incorporation

Entrepreneurs relief on incorporation

The ability to claim entrepreneurs relief when a business is incorporated has, very confusingly, been changed several times over the last year. Due to the changes made this is an area where errors are very likely.

So what is the position now? Can a claim be made or not?

For some time it has been possible to sell your sole trade to a limited company that you own and claim entrepreneurs relief.

This created a loan account balance in the limited company, taxed at only 10% and which could then be withdrawn in the future without any further tax being payable.

In 2015 the ability to claim entrepreneurs relief in this way ended. The tax legislation was amended to prevent a claim where the person selling the business, or a member of their family held any shares in the limited company, regardless of the size of the holding.

In 2016 the ability to claim has been reinstated with effect for disposals made on or after 3 December 2014, so retrospectively, but only where the sole trader owns less than 5% of the shares and less than 5% of the voting power in the acquiring company.

A claim will also be allowed if the sole trade owns more than these amounts provided the transfer is part of arrangements for the business to be sold to a new, independent owner.

Due to the retrospective nature of this change, it may be possible to amend 2014/15 tax returns and to generate a tax repayment.

For more information, please contact Lesley Sutton on 01484 550037 or email

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