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Budget 2016 Entrepreneurs’ Relief - important changes

Investor Relief

Employee shareholders have had the opportunity to pay capital gains tax at 10% on the disposal of shares in their employing company since capital gains tax taper relief was abolished in 2008, subject to meeting certain tests. Non employee investors in unlisted companies lost out at the time of the change.

Investors in unlisted trading companies will be pleased to know that entrepreneurs’ relief is to be extended by a new investors’ relief that is available to individual external investors in an unlisted trading company. Investors’ relief will apply to the disposal of ordinary shares issued for new consideration on or after 17 March 2016 and which have held for at least 3 years from 6 April 2016. Qualifying investor gains will be taxed at 10% and there will be a lifetime cap of £10 million.

Unfortunately, investors’ relief will not be available to employees or office holders so, unless they hold shares qualifying for entrepreneurs’ relief, they will be liable at the normal capital gains tax rate – which seems a touch harsh!

Joint Venture reinstatement

The 2015 Budget introduced new rules to combat a perceived abuse of entrepreneurs’ relief involving joint ventures and partnerships. These measures partially achieved the Government’s aims but also resulted in relief being denied to investors in some types of commercial structures where tax avoidance was not a main motive. This has been recognised and new definitions of ‘trading company’ and ‘trading group’ will be introduced in the 2016 Finance Bill to apply to disposals on or after 18 March 2015.

Where the new definitions apply, entrepreneurs’ relief will be available as before the 2015 legislative change.

Back track on incorporation

The Government has also back tracked on availability of entrepreneurs’ relief on the disposal of goodwill on incorporation. Subject to certain conditions to be announced in the Finance Bill 2016, entrepreneurs’ relief may be claimed on the goodwill of a business which is transferred to a company controlled by five or fewer persons or by its directors. The change will be backdated to disposals on or after 3 December 2014.

If you would like further information please contact Jack Reyland or your usual Mercer & Hole contact.

 

 

Date: 17th March, 2016
Author: Jack Reyland

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