Changes to Entrepreneurs’ Relief from April 2019
The Chancellor’s Autumn Statement 2018 introduced two key changes to Entrepreneurs’ Relief which are expected to have a significant impact on shareholders and business owners.
What is Entrepreneurs’ Relief?
Entrepreneurs’ Relief (ER) provides a reduced rate of Capital Gains Tax of 10% providing certain qualifying conditions are met. It is available to business owners and corporate shareholders owning a minimum stake in a company for a specified period of time. ER can be worth up to £1m of tax relief for shareholders meeting the qualifying conditions.
What are the 2 key changes?
- For disposals on or after 6 April 2019, the required ownership period increases from one to two years
- From 29 October 2018 the ER claimant is required to have a 5% interest in both the net assets and distributable profits of the company (previously it was 5% of the ordinary share capital)
Both measures are likely to limit the availability of ER.
Why the changes?
The government is keen that only shareholders with a genuine economic entitlement and true material stake in the business are entitled to the reduced ER 10% rate.
What issues should I be considering?
It is important to establish exactly when the business started to assess if the required ownership period conditions are met. If the business began within 24 months of disposal, ER will not be available.
Prior to a sale, equity arrangements should be reviewed to understand if the new 5% share rights are met. Shareholders should consider if any preference shares have been issued by the company as this could reduce their stake to below the 5% de minimus level and render them ineligible for ER.
What are the alternatives?
Shares received via an Enterprise Management Initiative plan are not subject to the same restrictions (with respect to the rules on 5% economic share rights) and could be an attractive way of holding shares.
How we can help
Our tax team can help you understand the changes and how they affect your personal and tax positions. We can advise you on your options and work with you to achieve an optimal tax position.
Please contact [email protected] or call 01527 558539 for further information.
HMRC website has further info on this area.