Entrepreneur's Relief - saving tax if you sell a website (UK taxpayers only)

[amateursurgeon]

Just came across this... it's highly interesting if you live in the UK, and not remotely interesting if you don't.

A while back, the UK government introduced something called Capital Gains Tax Entrepreneurs' Relief. The tl;dr version of this is that if you sell a business, or business asset, you get taxed at 10% on the profit, up to a life time limit of £10MM. This is a LOT lower than normal.

HM Revenue & Customs: Capital Gains Tax reliefs on shares

The interesting thing is that (if my reading is correct), you don't have to sell the entire business, just a "distinct part" of it. This means that if you sell a website , as long as it's substantial enough to qualify as a "distinct part", you should be able to pay a hell of a lot less tax on the profit.

You probably need to structure things properly in the first place to take advantage of this, so if you're planning to sell any online properties, it's worth talking to your accountant about.

 

[King.]

Maybe I'm being retarded, but what if I take all my profit every year and dump it into a new site, and then shortly after sell the site? Does that mean I always pay 10%?

 

[TigerUK]

I would have thought that sale of asset will fall under non-trading income which itself isn't taxed, but increases you income (thus tax liability).

What does this mean? the sale of asset reduces a portion your tax? or is the capatial gains excluded from the calculation of net income and calculated on it's own?

 

[amateursurgeon]

Maybe I'm being retarded, but what if I take all my profit every year and dump it into a new site, and then shortly after sell the site? Does that mean I always pay 10%?

It depends - afaik (and I'm not an accountant), if you're just reinvesting profits within a company, it doesn't create a taxable event.

@TigerUK... that's why you'd need to set it up properly. Whether the proceeds from a website sale are ordinary income or a capital gain depend on whether selling website is your "main business" (again, afaik, I'm not an accountant) or not. I think the upshot of this is talk to your accountant about it to make sure you plan it out properly. Capital Gains aren't taxed as income, so they'd be accounted for separately from income.

 

[seohug]

This applies to shares, not assets and not sales. Selling a website may qualify as selling an asset or a simple sale.

 

[amateursurgeon]

This applies to shares, not assets and not sales. Selling a website may qualify as selling an asset or a simple sale.

Not necessarily. From the HMRC guide:


You can claim relief, subject to the conditions set out below, on a disposal of
the following assets (including disposals of interests in these assets):


-assets used in the business (such as goodwill and business premises but
excluding all shares or securities (but see the third bullet of this list below)
or any other assets held as investments – see Example 1 on page 5)
comprised in a disposal of the whole or part of your business (see below),
whether you carried on the business on your own or in partnership (see
Example 2 on page 5)

And from later on:

Disposal of the whole or part of your business
You must have owned the business directly or it must have been owned by a
partnership in which you were a member. Entrepreneurs’ Relief is not
available on the disposal of assets of a continuing business unless they are
comprised in a disposal of a distinct part of the business


The last line is important - an asset sale qualifies if you're selling a distinct part of the business. Definitely requires some tax planning in advance to make sure you can do it. It may even be worth rolling it into a separate ltd company if you're planning to sell in a year or so, just to make sure of this.

It's probably not worth the hassle if it's just for a few k, but if you're selling a site for XXX,XXX, it would be.