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Entrepreneurs’ Relief changes impact owners, investors and management equity

Entrepreneurs’ Relief changes impact owners

The Budget announced changes to Entrepreneurs’ Relief – this is what owners, investors and management teams need to know.


Partner – People Services, Reward

KPMG in the UK


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Entrepreneurs’ Relief (ER) is a valuable relief that can mean an individual pays CGT on the disposal of shares at 10 percent, rather than at the standard rate of 20 percent. To qualify for ER, certain conditions must be met during a ‘holding period’ that, in most cases, ends on the date of disposal of the relevant shares. However, two important changes were announced at the Autumn Budget. From 29 October 2018 two additional conditions in relation to the economic rights of shares must be met in order for a disposal of shares to qualify for ER, and from 6 April 2019 the ‘holding period’ will increase from one to two years.

Background Our previous article Autumn Budget: Changes to capital gains tax Entrepreneurs’ Relief, highlights that the tightening of the qualifying conditions (effective from 29 October 2018) governing the economic share rights to which an individual must be entitled will have wide ranging implications. Our initial comments on the effect on management equity are available here.

Current uncertainty

The draft legislation published on 29 October 2018 is extremely wide in scope and there is current uncertainty as to the intended impact of these new rules.

As a general point, all shareholders who qualified for ER prior to the Autumn Budget should review their positions as soon as possible to confirm whether or not they should still qualify. Specifically, shareholders need to be aware that as the new rules are currently drafted, they could – depending on the specific structures involved – deny ER in unexpected circumstances. These include where:

  • Different classes of share are in issue which do not rank pari passu with respect to their capital and dividend rights (for example, where dividends may be declared on one class of shares but not on another at the directors’ discretion); and/or
  • Preference shares or loan notes with terms that mean they are not simply securities with a market rate return, that can result in them being treated as ‘equity’ for these purposes.

We do not think that the Government intends the scope of the new legislation to be as broad as it appears, and are currently engaging with HMRC to confirm their view. We understand that HMRC are taking legal advice. In the meantime, the intended scope of these rules remains unclear and the position is developing on a daily basis.


If you have share structures which involve differing income and capital rights and are hoping to be able to benefit from ER, then please speak to your usual contact.

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KPMG International Cooperative (“KPMG International”) is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

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