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Budget 2018: Changes to Entrepreneurs’ relief

David McManus

David McManus | Tax Advisory and Compliance Service

Wednesday 28th Nov, 2018

In the 2018 Budget at the end of last month, two key changes to Entrepreneurs’ Relief were announced which may have a significant impact on the number of shareholders benefitting from the relief.

Briefly, Entrepreneurs’ Relief can reduce the rate of capital gains tax from 20% to 10% on up to £10 million of capital gains arising on the sale of shares in a trading company (or the holding company of a trading group) where certain conditions are met, one being that the company is the individual’s personal company.

The first proposal affects the definition of a personal company and will apply to disposals on or after 29 October 2018. The definition of personal company will be expanded to add a requirement that the shareholder must have a 5% interest in the distributable profits and net assets of the company for the relief to be available. This is in addition to the existing requirements that the shareholder holds at least 5% of the share capital and that shareholding entitles them to at least 5% of the voting rights and that the individual is an employee or office holder of the company.

This has been done to ensure that individuals who benefit from entrepreneurs’ relief have a true material stake in the company.

Briefly, Entrepreneurs’ Relief can reduce the rate of capital gains tax from 20% to 10% on up to £10 million of capital gains arising on the sale of shares in a trading company (or the holding company of a trading group) where certain conditions are met, one being that the company is the individual’s personal company.

The second change will be introduced for disposals made from 6 April 2019. Currently, all the conditions for entrepreneurs’ relief must be met for at least one year ending with the date of sale, or if the business has ceased, to the last day of trading. From next April, all of the qualifying conditions will have to be met for at least two years ending with the date of disposal, or the cessation of trading.

If the business ceased trading before 29 October 2018, the one-year qualifying period will still apply to the gains arising from the shares or assets disposed of after cessation.

Selling your home and principal private residence relief

Commercial and residential property owners need to be aware the government is reducing the amount of time allowed to pay stamp duty land tax (SDLT) from 2019. The payment window for SDLT and for completion of the SDLT return is being cut from 30 days to 14 days, applying from 1 March 2019, (earlier than the usual April start date).

Read more here