Despite rumours that the Chancellor might scrap Entrepreneurs’ Relief (ER) altogether in the Autumn Budget, Philip Hammond decided to retain the tax relief but has made fundamental changes to who qualifies for it.
Mr Hammond said that “encouraging entrepreneurs must be at the heart” of the Government’s strategy but he recognised the relief as it stood was open to abuse.
To ensure ‘genuine’ entrepreneurs continue to benefit from ER, the Government has announced an extension of the qualifying period from 12 months to two years from April 2019.
This will ensure that directors and shareholders of a business have owned the asset for at least two years before they benefit from the 10 per cent rate of Capital Gains Tax (CGT) enjoyed under ER.
However, a further sting in the tail revealed in the Budget documents, means that shareholders must now be entitled to five per cent of the net assets and distributable profits, as well as five per cent of the ordinary share capital, in order to qualify for the relief.
This differs from the previous rules, which specified that the shareholder only needed to hold five per cent of the ordinary share capital and is part of a wider campaign by the Government to reduce the abuse of the CGT regime.
The Government estimates that these changes will generate an additional £5 million in tax revenue from 2019/20 rising to £90 million by 2023/24.
Link: Budget 2018