Entrepreneurs’ Relief: Settlor-Interested Trust

Entrepreneurial business

For business owners with a sale currently in progress or with plans to sell over the next few years, the imminent General Election may well be cause for concern;

  • Will all gains be taxed at the standard rate of 20%?
  • Will the standard capital gains tax rate also increase?
  • Will there be any Capital Gains Tax (CGT) benefits for entrepreneurs?

While we are unable to answer these questions now, we can help you to make sensible, realistic plans based on individual circumstances.

It has been well documented that a Labour government would seek to change or replace ER and the Conservative party have pledged:

“We also have to recognise that some measures haven’t fully delivered on their objectives. So, we will review and reform Entrepreneur’s Relief.”.

One consideration if you are already in the process of a sale, could be the transfer of funds to a ‘settlor-interested trust’. This involves you, as the owner, establishing a trust for the benefit of your family (including yourself) allowing you to transfer the business asset(s) into this trust.

As a transfer to the trust is considered a capital gain, it could qualify for ER under the current rules. Should the trust make a sale to a third party there would be no additional CGR at that stage, providing any increase in value is negligible (or none).

The timing of the CGT payment will be a key consideration. Payment is due on the 31 January following end of tax year of sale (e.g. 31 January 2021 for a sale made between now and 5 April 2020). A sale made to the trust where there is no following third-party sale being made before 31 January 2021 would result in a CGT payment with no sale proceeds to fund the payment.

“With the potential for significant tax savings the timing for business owners must be carefully planned”.

Find out more 

Download a copy of this key business advice below and contact Tax Director, Nathan Sutcliffe to find out more about how we can help the plans for your business and maximise tax savings.

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Focus On - Entrepreneurs’ Relief – Settlor-Interest Trust

Entrepreneurial business