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Autumn Budget 2018: Changes to capital gains tax Entrepreneurs’ Relief

Changes to capital gains tax Entrepreneurs’ Relief

The Chancellor announced Entrepreneurs’ Relief changes which shareholders need to consider now – the key changes are discussed here.


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The Chancellor announced two key changes to Entrepreneurs’ Relief which will have a significant impact on the number of shareholders benefitting from the relief, which is equivalent to up to £1 million of tax relief for qualifying shareholders.

The two key changes are:

  • An extension of the qualifying holding period from one year to two years (introduced for disposals on or after 6 April 2019); and
  • A tightening of the rules governing the share rights an individual must benefit from before they qualify (introduced with immediate effect) requiring the claimant to have a five percent interest in both the distributable profits and the net assets of the company.

Qualifying period

The extension of the qualifying holding period from one year to two years will mean that shareholders need to consider their position at least two years in advance of any potential transaction to ensure their position is protected.

Share rights

The tightening of the rules governing the share rights to which an individual must be entitled will have wide ranging implications.

Previously, in order to qualify for Entrepreneurs’ Relief, an individual must have held shares which represented five percent of the ordinary share capital, tested by nominal value of shares, and which entitled them to five percent of the voting rights. From 29 October 2018, the shares must also entitle the holder to five percent of the company’s distributable profits and five percent of the assets available to equity holders on a winding up.

This change ensures a shareholder must benefit from a genuine economic entitlement to five percent of a company in order to qualify for Entrepreneurs’ Relief, with the intention of the change meaning it is only claimed where an individual has a true material stake in business, aiming to limit claims to those who are within the spirit of the relief.

The new legislation means that shareholders will need to continually monitor their position to ensure they qualify for Entrepreneurs’ Relief. In particular, special consideration will need to be given to any companies which have issued preference shares or which have incentivised key management with ‛growth shares’.

By adding these additional tests, it is important that equity arrangements are reviewed well in advance of a transaction to understand whether shareholders can expect to benefit from Entrepreneurs’ Relief.

In addition, the changes further increase the attractiveness of shares received through an Enterprise Management Incentive option-plan (which must now be held for 24 months but are not subject to the additional restrictions relating to five percent of economic share rights).

Dilution protection

The draft legislation also confirms that the proposals to protect an individual’s Entrepreneurs’ Relief entitlement up to the point they are diluted below the five percent qualifying requirement will be introduced into law from 6 April 2019.


Craig Rowlands

020 7311 4683

Nathan Potton

0113 231 3802

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