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Changes to Entrepreneurs Relief

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The Chancellor announced two significant changes in his autumn budget to the qualifying conditions required to claim Entrepreneurs’ Relief (ER).

ER is an important tax relief for many of our clients because it may be applied to reduce the rate of capital gains tax from 20% to 10% on up to £10 million of capital gains arising on the sale of their shares in a trading company.  Previously this required the seller to hold at least 5% of the voting rights and at least 5% of the ordinary share capital in the company for the year prior to sale.

Qualifying Share Ownership

The first change, effective from 29 October 2018, is that the seller must also be entitled to at least 5% of the company’s distributable profits and net assets to satisfy the conditions required for ER. This is intended to deal with a perceived abuse of the system where a shareholder could meet the existing 5% holding requirements without actually being entitled to 5% of the value of the shares in the company at the time of an exit or winding up. Shareholders in companies with a single class of ordinary shares with straightforward Articles of Association should not be affected by this change.

Timing is everything

The second change, effective from 6 April 2019, is to increase the holding period of shares prior to disposal from one year to two years and, throughout this time, the qualifying conditions must be satisfied. This will affect existing shareholders and also holders of EMI options over shares who could also currently qualify for ER if they sell their shares at least one year after their option is granted.

Strangely, it seems that those who acquire their shares from the exercise of EMI options will not have to satisfy the new 5% value requirement and this may create tax planning opportunities. We suspect that this may have been an oversight on the part of HMRC which may be “corrected”.

Shareholders, especially those who are planning to sell or liquidate within the foreseeable future and take advantage of ER, should check their existing arrangements and in particular their shareholders’ agreements and articles of association to see how these changes affect them. New ventures and their shareholders should be mindful of the new qualifying criteria.

To discuss the changes mentioned in this article, you can contact Steven Grant on 02380 717717 or email  


This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice.  All content was correct at the time of publishing and we cannot be held responsible for any changes that may invalidate this article.