This used to be known as Entrepreneur’s Relief, and it can be claimed to reduce the rate of capital gains tax (GCT) when a business is sold (reducing it from 18% or 28% to just 10%). However, as with Business Relief, a large cash sum on the company’s balance sheet could mean it no longer qualifies, meaning CGT due on the business when sold will be based on the higher rate.

Instead of keeping large sums of cash in the bank, it is well worth using that cash more tax-efficiently. Fortunately, when we talk to business owners about extracting unused profits from the business, we can highlight several options to consider, depending on their own circumstances.

We often remind clients that pensions are still one of the most tax-efficient types of investment available today, and one of the most sensible ways to extract profits from a business. This is because pensions are much more flexible than they ever used to be.

Not only does the tax relief offered by the government act as a ‘top-up’ on the amount you contribute, but converting excess profits into pension contributions would overcome the income tax implications of taking the money out as a salary or dividend.

Also, any unused pension contribution allowances can be carried forward for three years, which is particularly useful for those with large sums to invest.

In cases where there may still be a sum of unused profits left over, clients might be interested to learn about the benefits available from investing in government-approved tax-efficient investment schemes, the best of these being Venture Capital Trusts (VCTs).

VCTs are particularly useful as an investment that sits alongside a well-funded pension, and the generous tax breaks available (including claiming 30% income tax relief on the amount invested) can help neutralise the tax implications of withdrawing large sums as dividends from a business.

However, VCTs do carry higher risk, and are generally more suitable for business owners who consider themselves more experienced and adventurous investors.

The third option for family business owners is to consider withdrawing the spare cash and investing it in another Business Relief-qualifying asset or portfolio of companies. The investment would be outside of the owner’s estate for IHT purposes, and could be passed on to beneficiaries without any IHT liability due.

Every family business is different, so it’s important to have a straightforward discussion about your plans for the business, and your own personal priorities, to find the right approach to suit you.

We can also make sure you understand the particular risks associated with these schemes and you’re comfortable with them before you invest. Remember that the value of an investment may go down as well as up and investors may not get back what they originally put in. Tax rules may change in the future, and the value of tax reliefs depends on your individual circumstances.