Changes to Entrepreneurs’ Relief – how it affects share disposal.
If you are disposing of shares in your company you should be aiming to qualify for Entrepreneurs’ Relief. This relief is where entrepreneurs may sell or give away their business and claim a relief of up to £10,000,000 lifetime gains at a reduced personal tax rate of 10%.
The November 2018 Budget changes had cast doubt on some shareholders’ ability to qualify for Entrepreneurs’ Relief, however, the good news is that HMRC have clarified that holders of “alphabet shares”, which are used for remuneration planning, are not the target of their changes.
As part of this clarification, HMRC will amend the 2019 Finance Bill to add an additional qualification test, which should safeguard such shares if a shareholder is entitled to 5% or more of the proceeds, in the event of a sale of the whole company.
The other key Entrepreneurs’ Relief change proposed by the Budget is the increase from one year to two years in the qualifying holding period. This means that shares disposed of on or after that date must have qualified for at least a two year unbroken period, rather than just one year, as is currently the case.
On top of this, all additional existing qualification tests will continue to apply, so you should take advice well in advance of disposing of your shares to ensure that you can, where possible, maximise your entitlement to relief and tax savings. An example of this might be the transferring of one spouse’s shares that do not qualify to the other spouse’s qualifying holding, to get greater relief across the family.
If you would like advice on disposing of company shares please get in touch. Our tax team were finalists in the 2018 Tolley’s Taxation Awards, and together with our leading Corporate Finance team we provide robust advice to our clients to plan for their business sale.