Changes to Entrepreneurs Relief from 6 April 2019

Entrepreneurs’ relief allows a reduced rate of capital gains tax on disposals of all or part of your business assets. The reduced tax rate is 10% on up to £10 million of lifetime gains.

There have been a number of significant changes to entrepreneurs’ relief in the last year, tightening the rules on qualifying conditions to ensure it is taken up by ‘genuine entrepreneurs’ only. To help identify if these may affect you, the main changes have been outlined below.

Increase in ownership period

Previously the period of ownership required to qualify for entrepreneurs relief was 12 months. This has now increased to 24 months for disposals on or after 6 April 2019 (unless relating to a business which ceased to trade before 29 October 2018).

Changes to beneficial ownership requirements

Previously, to qualify for entrepreneurs’ relief, you were required to hold 5% of the ordinary shares in a company, tested by looking at the nominal value of shares, and had to be entitled to 5% of voting rights.

This meaning has now been extended to also require either or both of the following:

• Beneficial entitlement to at least 5% of the profits available for distributions to equity holders and 5% of assets available on winding up; or
• Beneficial entitlement to at least 5% of the proceeds if all of the ordinary share capital was disposed of.

The above came into effect for disposals on or after 29 October 2018.

Company ceasing to be an individual’s personal company

Where an individual’s shareholding in their personal company is ‘diluted’ to below the 5% qualifying threshold for entrepreneurs’ relief, from 6 April 2019 it is possible to elect to claim entrepreneurs’ relief for the period up to the issue of new shares. This would be treated as a deemed disposal of shares at the date of the issue of new shares, and then a reacquisition of those assets at their relevant value.

To be able to make this election the following conditions must be met:

1. As a result of the share issue the company ceases to be the individuals personal company
2. Immediately before the issue, the disposal would have been deemed to be a material disposal of business assets and entrepreneurs relief would have been available

If you think any of the above changes may affect you and would like any advice, please speak to your usual Whiting and Partners contact.

Disclaimer - All information in this post was correct at time of writing.