Entrepreneurs’ Relief reduces the rate of Capital Gains Tax on the disposal of qualifying business assets to 10% for the first £10m of relevant gains made in a taxpayer’s lifetime.
Certain criteria have to be met for the relief to apply. One of these is based on the length of ownership of the asset. The Autumn Budget increased the qualifying period from 1 to 2 years for disposals taking place after 6 April 2019.
This extension to the qualifying period was introduced by the Chancellor as a way of encouraging ‘genuine entrepreneurs’ to the scheme.
It is part of a number of tighter measures, with the other, more complicated, regulation having already taken effect from 29 October 2018. This involved changes to the rules on the types of shares in relevant qualifying trading companies that attract Entrepreneur’s Relief.
An individual must have at least 5% of the ordinary capital and voting rights and, as of 29 October 2018, must also meet one of the following ‘economic interest’ tests. The alternative tests are:
- the shareholder must now also be entitled to 5% or more of the company’s distributable profits and 5% of the company’s assets available to equity holders on a winding up; or
- on a hypothetical sale of the entire ordinary share capital of the company, the seller must reasonably expect to obtain at least 5% of the total disposal proceeds based on the market value of the company. This condition must be satisfied through the qualifying period.