Entrepreneurs' Relief: Extension to qualifying conditions

The government has launched a consultation to review how individuals who own at least 5% of the shares in a trading company can retain entrepreneurs’ relief after the shareholding falls below the 5% threshold in certain circumstances.

As we have seen in the past few years, the government is keen to stimulate growth in the economy and is considering various options on how this can be achieved. In this instance, the proposal is for the relief to remain available on gains accrued up to the date the new shares are issued as a result of raising funds for commercial purposes. The intention is to incentivise entrepreneurs to remain involved in their businesses after receiving external investment.

The current proposal seems a sensible measure to allow entrepreneurs’ relief to be retained for qualifying individuals after a company raises external investment. It is also a practical measure to support business growth as it encourages entrepreneurs to remain involved. It should hopefully end the dilemma between an increased personal tax cost and limiting growth of a business due to concerns around raising external finance.

Entrepreneurs’ relief potentially offers a very attractive tax relief, however, it is a complex area of tax legislation and the qualifying conditions need to be carefully scrutinised. If further changes are to be introduced, the complexity will only increase and entrepreneurs should therefore seek advice at an early stage when considering a transaction and how their personal tax position is implicated, as well as that of the company.

The consultation is underway with the intention of introducing any new legislation with effect from April 2019.

For more information, please get in touch.

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