Changes to Entrepreneurs Relief from 6 April 2019

19th July 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.



 
Other items in Blogs
 
Paul Jefferson
2nd April 2020 Tax Planning for COVID-19 – A Brief Guide

Our Tax Department has written ‘A Brief Guide to Tax Planning for COVID-19’ please click the link below:   Tax planning for COVID-19 Brief Guide  

Read More »

Trina Nunn
2nd April 2020 COVID-19: HMRC Delays MTD ‘Digital links requirement’ until 1 April 2021

In light of the Covid-19 pandemic presenting unprecedented challenges for everyone, HMRC has announced a one year deferment to the requirement to digitally link separate software programmes when preparing your VAT return. The soft landing period of MTD (Making Tax Digital) had originally been in place for businesses to make a manual transfer – this…

Read More »

Harriet Sim
31st March 2020 COVID-19: July POAs

With an increasing pressure on the government to provide financial support to UK taxpayers during the COVID-19 pandemic, amongst other proposals, the government announced a deferral of the due date of the second payment on account for 2019/20.   Initially it was unclear whether this would apply only to self-employed individuals. Clarification has now been…

Read More »

Ian Piper
30th March 2020 Coronavirus Related VAT Deferral: Cancel DD with Bank

It is fairly well publicised now that as part of the Government’s financial support package for businesses during this Coronavirus outbreak, these businesses can, if they wish, defer their next VAT payment(s) (those due between 20 March and 30 June 2020). Interest and penalties will not be charged on such a deferral. What was not…

Read More »

Chris Kelly
27th March 2020 COVID-19: Organising your Business Finances

  Whilst the Government have announced a business finance support package, it is unlikely to be accessible for several days (the loans via the banks) or weeks (the grants via HMRC/Local Authorities). Not all businesses will meet the criteria for them anyway.  There is more to come from the Government, but in the meantime business…

Read More »

Chris Ridgeon
26th March 2020 Help for the Self-Employed

The new Chancellor, Rishi Sunak, has announced this afternoon (26th March 2020) much needed support for the self-employed. This will be known as the Coronavirus Self-Employment Income Support Scheme.   As in any support, there are conditions and the detail will need to be scrutinised.   To be eligible for the scheme there are various…

Read More »