Entrepreneurs Relief Calculation

[Greg@CapitalCity]

Using 100K as an example, the old calculation would result in a tax liability of 8092 whereas the 10%-calculation results in 8940, quite a difference.

Only correct if the annual exempt amount is not used elsewhere already. Clare probably assumed this was the case

[Wary]

It's the same thing:

£100,000 x 10% = £10,000

£100,000 x(5/9) x 18% = £10,000

Check out page 2 of this: http://www.hmrc.gov.uk/helpsheets/hs275.pdf

Amount of relief
If you are entitled to Entrepreneurs’ Relief, qualifying gains (see below) up
to the lifetime limit applying at the time you make your disposal, will
• for disposals made on or before 22 June 2010, be reduced by
4⁄9 and the net amount charged to Capital Gains Tax at the rate of 18%, or
• for disposals made on or after 23 June 2010, be charged to Capital Gains
Tax at the rate of 10%.

This is because prior to June 2010 there was one rate of CT - 18%. When they brought in the higher 28% rate it was necessary to simplify the ER calculation.

Thanks Clare. Mine was after June 2010 so looks like it will be a straight 10% once the personal allowance has been deducted.

Appreciate that 5/9 was intended to be a scale factor from 18% to 10% but I don't think the old & new calculations were strictly the same thing. Your example did not deduct one's personal allowance (i.e. 10600 for 2011/12). If this were deducted BEFORE the 5/9 scaling was applied then it would be. However, the versions of the calculation I've seen deduct it AFTER the scaling. Using 100K as an example, the old calculation would result in a tax liability of 8092 whereas the 10%-calculation results in 8940, quite a difference.

[Clare@InTouch]

It's the same thing:

£100,000 x 10% = £10,000

£100,000 x(5/9) x 18% = £10,000

Check out page 2 of this: http://www.hmrc.gov.uk/helpsheets/hs275.pdf

Amount of relief
If you are entitled to Entrepreneurs’ Relief, qualifying gains (see below) up
to the lifetime limit applying at the time you make your disposal, will
• for disposals made on or before 22 June 2010, be reduced by
4⁄9 and the net amount charged to Capital Gains Tax at the rate of 18%, or
• for disposals made on or after 23 June 2010, be charged to Capital Gains
Tax at the rate of 10%.

This is because prior to June 2010 there was one rate of CT - 18%. When they brought in the higher 28% rate it was necessary to simplify the ER calculation.

[Wary]

I'm after some clarification on the Entrepreneurs Relief Calculation for 2011/12.

I've claimed this before and the calculation involved deducting 4/9 of the capital as Entrepreneurs Relief, then deducting one's personal yearly allowance ... with the remainder being subject to CGT at the normal rate (18% then). However, some searches indicate that for 2012, assuming no other capital gains liabilities, then it is just a straight (capital - 10600) * 10%.

I've seen the 4/9 calculation on this forum, but this was from 2008 so my guess is that this calculation is out of date and it is now just a straight 10% after deducting 10600 from the qualifying capital. Would appreciate some definite confirmation though before I complete my PTR.

Thanks