Improving Entrepreneurs’ Relief (ER)
For any business owner, the opportunity to enjoy the fruits of their labour after only suffering a 10% tax rate is very appealing and rewards their enterprise. However, many businesses require external financing to grow, which in turn means that the business owner surrenders some ownership to attract the financing. This dilution can result in a doubling of the business owner’s ultimate tax liability on sale.
To ensure that a business owner does not avoid seeking external finance (or indeed leaves the business too early) simply due to the risk of losing ER, the Government have today launched a consultation to arrive at new legislation to become effective for fund raising events from 6 April 2019.
The proposal is that if a fund raising event dilutes the business owner’s shareholding to the extent that ER is no longer available (i.e. below 5%), they will be able to elect to be treated as having disposed of and reacquired their shares at the then market value. To avoid a cash flow disadvantage, they will also be able to defer taxing this gain until an actual disposal of the shares.
We'll be keeping an eye on this and will let you know as soon as any developments take place. In the meantime, if you have any questions or concerns and would like advice tailored to your situation, please do not hesitate to speak to your usual Buzzacott contact.
+44 (0)20 7556 1332