Entrepreneur's Relief enables taxpayers to pay a reduced Capital Gains Tax (CGT) rate of only 10% on gains made on the sale of a business, a part of a business, shares in a personal company, EMI scheme shares or (if associated with the sale of a business) business assets. Two significant changes were announced in the Budget 2018.
Minimum holding period
Normally, in order to qualify for ER the assets in question must be held for a minimum period. A new measure announced in Budget 2018 increases the minimum period throughout which qualifying conditions must be met from one to two years. This affects:
- individuals who dispose of all or a part of their business;
- individuals who dispose of shares in their "personal company" on or after 6 April 2019; and
- trustees who dispose of trust business assets.
The new measure has effect for disposals on or after 6 April 2019, except where a business ceased before 29 October 2018. Where the taxpayer's business ceased, or their personal company ceased to be a trading company (or the holding company of a trading group) before 29 October 2018, the existing one year qualifying period will continue to apply.
Definition of "personal company"
Taking effect for disposals on or after 29 October 2018, a "personal company" is now defined as one in which the taxpayer is beneficially entitled to at least:
- 5% of the company's distributable profits; and
- 5% of assets available for distribution to equity holders in a winding up; as well as having
- 5% of the share capital; and
- 5% of the voting rights
This new, more restrictive definition of a "personal company" may pose a problem particularly for shareholders of companies where there are different classes of shares in issue, each bearing different rights. Entitlement to ER in such situations should not be automatically assumed; rather, if a disposal of shares is being contemplated, a careful review of the facts to determine eligibility (or otherwise) should be undertaken.
Contact our tax team today for further details or to discuss your circumstances.
