A relief for entrepreneurs
Entrepreneurs’ Relief from Capital Gains Tax provides a generous regime when you sell your shares in certain circumstances. There were fears that it would be abolished in the budget on 29 October 2018 but it continues to be available, although with some changes in the rules.
To qualify for the Relief, which reduces to the rate of 10% the Capital Gains Tax on chargeable gains up to a maximum of £10m, a shareholder (“entrepreneur”) must own and then sell shares in a trading company.
The seller must hold at least 5% of the issued share capital and 5% of shareholder voting rights. The conditions have been tightened so that the seller must now also be beneficially entitled to 5% of the company’s distributable profits and to 5% of the assets available on winding up. In other words, the shares sold must be fully participating shares, not shares with restricted rights.
These additional conditions would not have caused a problem in any of the transactions we have worked on in recent times – though they may cause issues in some cases, perhaps for example in relation to growth shares. They came into effect immediately.
The length of time for which the seller must have held the shares prior to the sale has been doubled from 12 months to two years. This change comes into effect on 6 April 2019.
We are seeing high levels of M&A activity at the moment. In circumstances where Entrepreneurs’ Relief is available, the tax regime is currently very benign.
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