To ensure that Entrepreneurs’ Relief (ER) is focussed on
supporting longer-term investment, individuals will need to meet the qualifying conditions (for
example, having at least 5% of
This change will come into effect for disposals made on or
after 6 April 2019.
1. If individuals meet certain conditions (for example,
having at least 5% of the shares and voting rights in a trading company) they
can benefit from a reduced rate of capital gains tax (CGT) on any gains that
they make on disposal of those assets.
2. The relief reduces the rate of CGT due from 20% to 10%
and is claimed by around 50,000 individuals each year according to HMRC
figures. It is designed to support and encourage investment, and means that
entrepreneurs can keep more of the rewards when their business is successful.
3. The average claimant benefits by £8,000 and the total
cost of the relief to HMRC was £2.7 billion last year.
4. The government will continue to back entrepreneurs who,
with considerable initiative and risk, play a key role in starting and growing
a business. However, the government wants to ensure that the relief is focussed
on supporting and encouraging longer-term investment in the economy and, in
doing so, that it offers value for taxpayers’ money.
5. Therefore, for disposals made on or after 6 April 2019,
individuals will need to meet the qualifying conditions for two years to be
eligible for the relief, up from the current 12 months.
6. Further, this change will not affect 95% of ER claimants
according to HMRC sources. In
- most basic rate taxpayers making gains below the higher rate income tax threshold will be unaffected, as the basic rate for gains on most assets is already 10%
- taxpayers benefit from an annual exempt amount of £12,000 in 2019-20, on which CGT is not due
7. This change will come into effect alongside an extension
of the relief that the government announced at Autumn Budget 2017. From April 2019, the
government will remove disincentives for companies to take on external investment
by ensuring that, even if an individual’s shareholding is diluted to below 5% as a
result, they will be able to claim the relief.
Comparison of EIS, ER and IR Reliefs
EIS
|
ER
|
IR
| |
Maximum investment
|
£1m a year
|
None
|
None
|
Income tax relief
|
30%
|
None
|
None
|
CGT
|
0%
|
10%
|
10%
|
Cap on gains relieved
|
None
|
£10m
|
£10m
|
Income tax loss relief
|
Yes
|
No
|
No
|
Reinvestment/ rollover relief
|
Yes
|
No
|
No
|
Ownership
|
Less than 30%
|
More than 5%
|
None
|
Holding period
|
3 years
|
1 year
|
3 years
|
Use of pre-existing shares
|
No
|
Yes
|
No
|
If you think these reliefs are applicable in your circumstances, you are advised to seek professional advice without delay in order to maximize the advantages and tax benefits.