Mercer & Hole’s Business blog - Entrepreneurs

Enterprise Management Incentive (EMI) was already regarded as the “best” employee share scheme and it is getting better. The maximum value of options that an individual can hold under this scheme has increased from £120,000 to £250,000.  The change will be made by Statutory instrument, and implemented as soon as possible, subject to state aid approval. Additionally, changes are planned in 2013, to allow EMI shareholders to qualify for Entrepreneurs’ Relief and so pay 10% capital gains tax rather than 28% on sale, after holding shares for twelve months, even if they do not hold 5% of the shares.   ...

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The increase in the limit for entrepreneurs’ relief to £5 million was very welcome.   Initially, the change in calculation from a reduction in the gain charged at 18% to a flat rate of 10% seemed to be a sensible simplification. However, this can cause a problem on small gains. Looking at a gain, qualifying for entrepreneurs’ relief, of £18,000: in 2009/10 the gain would have been reduced by 4/9ths, to £10,000 and so covered by the annual exemption – no tax due.  in the current year the whole gain would be chargeable, hence £18,000 less annual exemption,...

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Although Entrepreneurs' relief is readily available to employees and directors who have held the right number of shares for long enough, there is a trap for the unwary and hot headed. An employee or director who, for example, falls out with his colleagues and resigns before selling his shares in the company will forfeit his right to reduce his tax bill by nearly two thirds, since he will no longer be an employee and will therefore fail to meet this criterion at the date of sale, regardless of how long he might have worked for the company. There are many...

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In order for an employee or director of a company to benefit from the new Entrepreneurs’ Relief after 5 April 2008, he or she must have held more than 5% of the company’s ordinary shares for at least twelve months. But it will not be necessary to have held all of the shares being sold throughout the period, as one of the Revenue’s FAQs makes clear: Q - I already hold over 10% of the shares in the company. If I acquire another 4% of the shares and sell the whole 14% 6 months later, can I get entrepreneur’s relief...

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There has been a great deal of concern, since Alistair Darling’s announcement that taper relief would be abolished from 6 April 2008, that people holding loan notes after selling their business would face an 18% tax rate, rather than the 10% they had expected at the time they sold the business. The Revenue have just released draft legislation on the proposed Entrepreneurs’ Relief, together with answers to a number of frequently asked questions. Within the latter, they have confirmed that, if the original disposal would have met the conditions for Entrepreneurs’ Relief (e.g. 5% ordinary shareholding, carrying 5% of the votes,...

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Anyone who has exchanged shares for non-qualifying corporate bonds (or non-QCBs, for short) needs to review their position carefully – before 5 April 2008. Unless, in addition to the non-QCBs, they meet the criteria for the new Entrepreneurs’ Relief (e.g. they have been employed by the company that issued the loan notes and have owned at least 5% of the company’s ordinary shares throughout the twelve months prior to encashing the loan notes) they will face an 18% capital gains tax bill, rather than the 10% they might have expected when exchanging their shares. It may be possible to benefit from...

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Anyone thinking of exchanging shares in their trading company from loan notes in another company after 5 April 2008, will need to be very careful about which type of loan note they accept. The rules are involved and every circumstance will differ. If you would like to know more, please get in touch with Cathy Corns or me. ...

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Someone “selling” their company by taking shares in the acquiring company may be in for a nasty surprise after 5 April 2008. The new Entrepreneurs’ Relief, which comes into effect on 6 April, will reduce the capital gains tax due on selling shares from 18% to 10% only if the vendor: worked for the company; and  owned at least 5% of the ordinary shares in that company, carrying at least 5% of the votes, throughout the twelve months leading up to the sale. Our experience is that these two criteria are often not met, either because the vendor does not work for the...

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The Revenue have confirmed that the £1 million “lifetime limit” for capital gains qualifying for the new Entrepreneurs’ Relief will apply only to gains made after 5 April 2008. Official confirmation to anyone born in April 1968 that life really does begin at forty. ...

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The new Entrepreneurs’ Relief, which comes into play from 6 April 2008, will (subject to certain criteria) reduce the capital gains tax due when shares in trading companies – or business interests – are sold. It will not, however, be available where business assets are sold in isolation, rather than as part of the disposal of a business. This would include, for example, the sale of land owned and used by a farmer, unless the sale could be argued to be of a distinct business. This is likely to be an area of debate with the Revenue and, in many cases,...

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