Entrepreneurs' Relief and Trusts

The recent Budget announced a generous extension to Entrepreneurs' Relief, which now offers a 10% Capital Gains Tax rate for the first £10 million of gains on the sale of a business. That compares very favourably with the standard 28% rate. With such a large differential in rates, the cost of not qualifying for Entrepreneurs' Relief is now huge, resulting in extra tax of up to £1.8 million (or £3.6 million for married couples and civil partners). The conditions to qualify for the relief can be strict and it is therefore vital that business owners check that they meet the conditions.

A particular risk exists where shares are held in a family trust. Trusts often hold private company shares for sensible tax or estate planning reasons and although Entrepreneurs' Relief can apply to shares in a trust, various additional conditions need to be satisfied. Where those conditions are not met, it may be possible to restructure the trust to ensure the relief is available.

Entrepreneurs' Relief applies to UK trusts but it can also be relevant for offshore trusts where one or more beneficiaries lives in the UK. Since the conditions need to be satisfied for at least one year, and because a sale of the business could happen at short notice, we recommend that trustees take action as soon as possible to check they qualify. Not doing so might even amount to a breach of the trustees' fiduciary duty if Entrepreneurs' Relief is not available on a sale when it could have been preserved by taking appropriate steps.

For further advice on Entrepreneurs' Relief and how to ensure it applies to trusts, please contact Andrew Goldstone on +44 20 7440 7205 or by e-mail.