Entrepreneur’s Relief – Increase in HMRC Enquiries
Overview of Entrepreneur’s Relief
Entrepreneur’s relief is available on the disposal of qualifying business assets and shares and allows the taxpayer to claim a reduced rate of capital gains tax of just 10% (compared to 18/28% for basic/higher rate taxpayers).
Since 6 April 2011 entrepreneur’s relief has been available on up to £10 million of gains – this is a lifetime limit which applies per person.
The relief is therefore very valuable and is often utilised by business owners.
In order for the relief to be available a number of conditions must be met – the relevant conditions will depend on the type of asset being disposed of and who is disposing of the assets.
Entrepreneur’s relief can also apply to certain trusts such as the trustees of a life interest trust provided the beneficiary meets certain conditions.
HMRC Tax Enquiries & Investigation
We have noticed in recent months that HM Revenue and Customs appear to be scrutinising claims for entrepreneur’s relief in more detail and more regularly than previously.
The enquiries do not appear to stem from queries regarding the underlying circumstances of individual clients but instead a more general focus on obtaining evidence that the relevant conditions for entrepreneur’s relief have been met (for example copies of annual returns, accounts, share certificates etc).
Such requests have in some cases ignored information provided in the additional information box/blank space on the return, which can be frustrating for taxpayers and advisors.
Entrepreneurs relief is very valuable and therefore it is very important to be thorough in considering its availability prior to the taxpayer’s disposal. This ensures that evidence can be provided when HMRC raise their enquiry, which should be expected.