Posted by Nick Day on 30 May 2019
Changes to Conditions for Entrepreneurs’ Relief
Entrepreneurs’ Relief has been the subject of recent changes including an extension to the length of the required qualification period and the introduction of a measure or protection for taxpayers who find that their shareholding has been diluted below the Entrepreneurs’ Relief threshold.
Entrepreneurs’ Relief is well-known to tax payers, offering a generous reduction in the rate of capital gains tax paid on the disposal of qualifying assets. A number of changes have recently been made to Entrepreneurs’ Relief, including changes to the definition of a qualifying shareholding that may have affected people with alphabet shares.
The most significant new change is that the period during which the Entrepreneurs’ Relief requirements must be met prior to a disposal has been increased from one year to two for disposals taking place after 5 April 2019.
In addition, a provision has been introduced that is designed to protect shareholders who qualify for Entrepreneurs’ Relief, but find that their shareholding is diluted below the 5% ownership threshold due to a new issue of shares that occurs after 5 April 2019.
In order to qualify for Entrepreneurs’ Relief on a disposal of shares the shareholder must own at least 5% of the company’s share capital during the two years leading up to disposal. A shareholder may meet those conditions but find that their shareholding is diluted below the 5% threshold by an issue of new shares in the company. When such a dilution occurs on or after 6 April 2019, a shareholder may crystallise their gain at that point by electing to be treated as if they sold and reacquired their shareholding immediately before the dilution event. This will create a capital gain, but a second election is available that delays the taxation of this gain until the shareholder makes a later actual disposal of shares in that company. This second election allows Entrepreneurs’ Relief to be claimed on the deferred gain.
If you own shares in a company that is preparing to issue new shares, you should give some consideration as to whether your shareholding will be diluted to an extent that will prevent you claiming Entrepreneurs’ Relief at a later date. If so, the newly introduced election may offer significant benefits.
If you would like any advice regarding the changes to conditions for entrepreneurs relief or would simply like to discuss other ways in which we could help you or your business, please contact us on 01962 856 990 or firstname.lastname@example.org
- Main Residence Exemption – Update on Recent Court Cases
- Non-Resident Landlords – UK Tax Update
- Top 10 Expat Tax Tips for Individuals Moving to the UK
- Non-Domiciled Rebasing for Capital Tax Gains: April 2017
- UK Tax Returns for Expats, Non-Doms and US Citizens