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Entrepreneurs’ Relief and the Autumn Budget

You may have heard whisperings about Whitehall scrapping Entrepreneurs’ Relief in the lead up to the Autumn Budget and although it won a reprieve, the Government is still proposing to introduce changes to the relief - we’ll be explaining these in more detail in this month’s Horsham Accountancy Blog.

So what is Entrepreneurs' Relief?

The Government introduced the relief so eligible business owners could pay less Capital Gains Tax when they sold (or 'dispose of') all or part of their business. It means owners pay tax at 10% on all gains on qualifying assets.

If you're selling all or part of your business

To qualify for relief, both of the following must apply:

you're a sole trader or business partner
you've owned the business for at least one (and under the incoming changes now two years) before the date that you sell it (see below).

Three adjustments are proposed in 2019:

Qualifying period - one of the main changes is extending the minimum qualifying period for the relief from one to two years to ensure that it is benefiting genuine entrepreneurs. This will come into force on April 6, 2019.
However, this doesn't relate to businesses which stopped trading before October 29, 2018, which will still have a one-year qualifying period.

Definition of a personal company – from April, the shareholder must have a five per cent interest in the profits and net assets of the firm for the relief to apply.

This is in addition to the existing requirements that the shareholder holds at least five per cent of the share capital, that shareholding entitles them to at least five per cent of the voting rights and that the individual is either an employee or office holder of the company. This change applies to any disposals made on or after October 29, 2018.

Fall in shareholding - a genuine commercial reasons test will apply where a shareholding is diluted to fall below 5 per cent, where previously the shareholding was greater than 5 per cent. Some circumstances would be excluded from this, for example, the disposal of employee share options.

It's worth bearing in mind that the proposals and legislation could be amended during the passage of the finance bill through parliament, so it's worth keeping an eye out for any news articles or updates online. You can also find out more about changes proposed in the Budget here

Based near Horsham, West Sussex, Giltinan and Kennedy LLP is regulated by the Institute of Financial Accountants (IFA) and is proud of its reputation for providing excellent advice and first class tax return, payroll, financial and accountancy services to its range of business and personal clients. It works with organisations, large and small, across many sectors.

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