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Entrepreneurs Relief in the UK is an excellent tax incentive for entrepreneurs to create British companies and then sell them for a significant profit. Even though Entrepreneurs Relief may assist you in significantly avoiding capital gains tax (CGT), if you have the choice, why pay any capital gains tax at all if this can be legally achieved? The question of avoiding capital gains tax on the sale of your business will be addressed later in this article. Capital gains tax advice accelerates wealth building for the Entrepreneur through even greater profit.

How does Entrepreneurs Relief Work?

Entrepreneurs Tax Relief works by substantially reducing the capital gains tax for the entrepreneur down to 10 per cent of the gain. The relief is available for the disposal of:

1. all or part of a business
2. the assets of a business after it has stopped trading
3. shares in a company

This applies up to the maximum lifetime limit of 10 million Pounds in 2011/12 tax year. Once you have used your 10 Million Pound limit you can no longer claim Entrepreneurs Relief. This is another point at which you may choose to look at tax planning.

How are you eligible for Entrepreneurs Relief?

Entrepreneurs Relief is only available for individual tax payers and not companies. You must meet one of the following criteria to be eligible:

1. You are in business as a Sole Trader or as a partner in a business.
2. You hold shares in your personal trading company.

Avoid all Capital Gains Tax on the sale of your Business

If you are selling your business, which may give you a net capital gain of 10,000,000 pounds, you will still be eligible for 1,000,000 Pounds in tax. This is still considerably less than the 2,800,000 Pounds (28 per cent in 2011/12) that you would have paid but why even pay this if you don't have to as it is still a huge amount of money? Specialist tax planning companies can legally assist you in this matter.

If your aim is to eventually sell your business you may want to seek specialist capital gains tax advice in advance with the aim of avoiding capital gains tax on the eventual sale. An example would be having the shares in the business owned by an offshore entity that has a favourable dual taxation treaty with the UK.

The first way and perhaps more expensive method of creating a tax-free sale is to create a paper loss equal in magnitude to your gain. This paper loss will effectively reduce your CGT liability to zero. There are numerous ways of achieving this and your tax consultant will discuss these options with you.

The second most common method for achieving a capital gains tax-free sale is to convert your limited company into a limited liability partnership at least 6 months prior to the sale and then your tax consultants will construct the sale to be tax-free. The reason that this transaction is completed 6 months prior to the sale is because anti-avoidance legislation will negate some methods if they are made purely for the purpose of avoiding capital gains tax. There needs to be sound business reasons for such a move, which your consultants will inform you of during your consultation.

The results of this tax planning will make your entrepreneurial activities significantly more profitable, especially for the larger companies that are not fully covered by Entrepreneurs Relief or if you have already used your lifetime allowance.

Jason Russell is a consultant with The Tax Experts, a UK based firm that specialises in UK Tax Avoidance Schemes and Tax Planning. The firm demonstrates to clients on a daily basis that tax in the UK tax is totally optional and is legal to avoid. The firm offers income tax planning, capital gains tax advice, corporate tax planning, inheritance tax planning and avoiding stamp duty and land taxes on house purchases and commercial properties.

Some of the methods used are the Employee Benefit Trust, film partnership schemes, Employer Funded Retirement Benefit Schemes, offshore company structures and numerous other legal mechanisms. To learn more about The Tax Experts please visit http://www.thetaxexperts.co.uk

By Jason A Russell