Entrepreneurs’ relief

New personal company test
Entrepreneurs’ relief reduces the amount of capital gains tax payable on the disposal of qualifying business assets. The availability of the relief is contingent on the qualifying conditions being met.

Entrepreneurs’ relief is available for the disposal of shares and securities in a personal company. The definition of a personal company was changed with effect from 29 October 2018. Prior to that date, a company was an individual’s personal company if the individual held at least 5% of the ordinary share capital of the company and that holding gave the shareholder at least 5% of the voting rights in the company. From 29 October 2018 two further tests apply – the individual must also be beneficially entitled to at least 5% of the distributable profits and at least 5% of the assets available for distribution to equity holders in the event of a winding up.

The new test must be met if entrepreneurs’ relief is to be available in respect of disposals on or after 29 October 2019.

If you are planning on disposing of shares in your personal company, speak to your adviser to check that your company meets the new definition of a personal company.

Extension of the qualifying period
For entrepreneurs’ relief to be available, the qualifying conditions must be met throughout a minimum qualifying period. The minimum period is to increase from one year to two years for disposals on or after 6 April 2019.

Forward planning is essential where a disposal is planned to ensure that the conditions have been satisfied throughout the relevant minimum period. Speak to BFMS to determine the optimal disposal date to ensure that relief is not lost.