29 October 2018
Changes to Entrepreneurs’ Relief (ER) announced in today’s Budget will punish minority shareholders planning to dispose of shares – leaving them with an increased tax bill and no time for tax planning.
The Chancellor changed the conditions required in order to qualify for ER with immediate effect and without warning. Many shareholders, including employees, could face a 20% tax bill on the disposal of shares instead of the normal 10% under Entrepreneurs’ Relief.
Jemima Jones, Partner at leading accountancy firm, Wilkins Kennedy, said: “Prior to today’s announcement, in order to claim ER, you needed to hold at least 5% of the voting rights and 5% of the Ordinary Share Capital.
“This meant that, with tax planning, a number of people could qualify for the Entrepreneurs’ Relief rate at 10% on the disposal of those shares, instead of the normal Capital Gains Tax rate of 20%.
“The Government has introduced these changes with immediate effect and without warning. Furthermore, any planning to overcome this, could come at quite a cost.
“Anyone selling their shares from 29 October 2018 who does not currently own 5% of the economic value of the company, will no longer enjoy the reduced ER rate of 10%. Instead they can expect to pay a maximum Capital Gains Tax rate of 20%.”