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Entrepreneurs’ relief changes from April 2019

For people selling a business, entrepreneurs’ relief can reduce the amount of capital gains tax (CGT) that has to be paid on any profit made from the sale.

According to Government figures, the relief is taken up by around 50,000 individuals every year, with the average claimant benefiting by around £8,000.

In the lead-up to the Budget in October 2018, however, speculation emerged that the relief could be scrapped.

Chancellor Philip Hammond dismissed those claims in his speech, instead asserting that encouraging entrepreneurs was at the heart of the Government’s strategy for a dynamic economy.

Although Hammond stopped short of abolishing the relief, he did announce a set of stricter rules affecting its qualifying conditions to ensure it is taken up by “genuine entrepreneurs”.

Some of these came into effect immediately from 29 October 2018, but another - an extension to the minimum qualifying period - only just came into force, on 6 April 2019.

What is entrepreneurs’ relief?

Entrepreneurs’ relief reduces the rate of CGT you have to pay when you sell all or part of a business, subject to certain qualifying conditions.

It reduces the rate of CGT payable to 10% - down from the previous rate of 20% - on up to £10 million of qualifying gains made during your lifetime.

Those gains must arise from the disposal of:

shares or bonds in your personal company

all or a significant part of your unincorporated business

an asset used by your business or by your personal company when the disposal is made in association with the disposal of at least 5% of the business or company.

There are other requirements which need to be met for any of those disposals to qualify, which must be met for a minimum qualifying period of time - previously 12 months.

What’s changed?

It was announced in Budget 2018 that the minimum qualifying period for entrepreneurs’ relief would be extended to 2 years from 6 April 2019.

The other, more complex measure, which took immediate effect from 29 October 2018, was a tightening of the rules around the type of share rights that qualify.

Previously, an individual had to hold shares representing 5% of the ordinary share capital, tested by nominal value of shares, and which entitled them to 5% of voting rights.

Under the new rules, the share must also entitle the holder to 5% of the company’s distributable profits and 5% of the assets available to equity holders in a winding up.

Get in touch

The rules surrounding entrepreneurs’ relief are complicated, and there may be other conditions to check to make sure you qualify.

We can help you plan your CGT liability, as well as assisting with other areas of selling a business. Contact tracya@knightandcompany.co.uk or call 01628 631056 to talk about how we can help your business.