When you sell a business or shares in your personal company, the gain made on that disposal will normally qualify for entrepreneurs’ relief which applies capital gains tax (CGT) at 10%. Up to £10m of gains can qualify for this relief in your lifetime.
For a company to qualify as your personal company you must hold at least 5% of the ordinary share capital and 5% of the associated voting rights. For disposals made from 29 October 2018 you must also have a right to 5% of the net assets of the company and to 5% of its distributable profits. These additional conditions may prevent managers involved in management buyouts from qualifying for entrepreneurs’ relief, although most owner-directors should not be affected.
Currently all the conditions for entrepreneurs’ relief must be met for at least one year ending with the date of sale, or if the business has ceased, to the last day of trading. From 6 April 2019 all of the qualifying conditions must be met for at least two years ending with the date of disposal or cessation of trading.
If the business ceased trading before 29 October 2018, the one-year qualifying period will still apply to the gains arising from the shares or assets disposed of after cessation.