Will Entrepreneurs’ Relief apply if I sell a property used in my business?

Entrepreneurs’ Relief applies to the sale of business assets or shares in a trading company, reducing the Capital Gains Tax rate to 10% for qualifying disposals.

The main rates of Capital Gains Tax that apply to the sale of assets, are 10% for basic rate taxpayers (see note below) and 20% for higher rate taxpayers, with higher rates of 18% and 28% respectively for the sale of residential properties.

The applicable rates depend on your taxable income for the tax year in which the capital gain arises. If your taxable income is below the higher rate tax threshold (£46,350 for 2018/19) then at least part of your gain will be at the lower rates, with the balance that takes your income plus gains over the higher rate threshold taxed at the higher Capital Gains Tax rate.

However, for the sale of many business assets Entrepreneurs’ Relief is available which gives a Capital Gains Tax rate of 10%, regardless of the level of your income.

This month’s question looks at whether Entrepreneurs’ Relief is available on the sale of a commercial property used by our client’s trading company.

The answer depends on two main factors. Firstly, has any rent been charged to the company for its use of the property. If the answer is yes then the property is considered to be an investment and Entrepreneurs’ Relief will not be available. But if no rent is charged then it is classed as a business asset and Entrepreneurs might be available.

The second factor is that Entrepreneurs’ Relief will only be given where the disposal of the property is associated with the taxpayer’s sale of the business that the property is used in, or its shares. In the case of a limited company, the taxpayer would need to be selling at least 5% of the shares in the business for this to qualify.

In summary then, where a taxpayer owns a property personally that is used in their business, they will only get Entrepreneurs’ Relief on its sale if they have not been charging rent, and if they are also selling the business (or part of it).