Three Major Changes To Entrepreneurs’ Relief To Note
Entrepreneurs’ Relief is a valuable relief that can mean an individual pays Capital Gains Tax on the disposal of shares in their employer at 10%, instead of the 18% or 28% rate that would otherwise apply. As of October 29th, one of the most frequently asked questions we’ve received is what changes the 2018 Autumn Budget proposes in regards to it.
Below are the three biggest changes to Entrepreneurs’ Relief as provided by Croner Taxwise, and our best suggestions on how to navigate them.
Definition Of Personal Company
The first major change affects the definition of a personal company, says tax specialist John Riseborough. This will apply where the disposal is of shares in a trading company or the holding company of a trading group. The definition of a personal company will be expanded to add a requirement that the shareholder must have a 5% interest in the distributable profits and net assets of the company for the relief to be available.
This is in addition to the existing requirements that the shareholder holds at least 5% of the share capital and that shareholding entitles them to at least 5% of the voting rights and that the individual is an employee or office holder of the company.
Be aware that this change will apply to disposals on or after 29th October 2018.
The second major change highlighted is that the qualifying conditions in all cases must be met for 2 years to the point of disposal or the cessation of trade. The previous rule allowed a 1-year qualifying period, explains Riseborough.
This is to apply to disposals on or after 6th April 2019. However, an element of protection has been put in place where businesses ceased prior to 29th October 2018.
Make sure to note that the 1-year qualifying period will be preserved.
Lastly, the third change will apply where a shareholding is diluted to fall below 5% where, prior to the dilution, the shareholding was greater than 5%. This will be subject to a genuine commercial reasons test. This would exclude, for example, debt for equity swaps or the exercise of employee share options.
Entrepreneur’s Relief would be retained on the growth in the shares up to the point of dilution. A deemed disposal will arise. However, it will be possible for the shareholder to elect for the notional gain to be deferred until the shares are actually sold.
This will apply in respect of shares held at the time of fundraising events on or after 6th April 2019, highlights Riseborough.
Make sure to stay tuned as we address more autumn budget report frequently asked questions! for specific inquires, contact us at firstname.lastname@example.org or 01280 818 777. A special thank you to our friends at croner taxwise.
Autumn Statement 2023
On 22 November 2023, Jeremy Hunt delivered the 'Autumn Statement for Growth'. Against an improving economic backdrop, the Chancellor is keen to stimulate economic growth and highlighted 110 measures for businesses. In addition, there were significant statements relating to National Insurance changes and also the reform of work-related state benefits.
The Budget 2021
The Chancellor Rishi Sunak presented his second Budget on Wednesday 3 March 2021. In his speech he stated his Budget ‘meets the moment with a three-part plan to protect the jobs and livelihoods of the British people’.