Entrepreneurs Relief: Disposal of Assets

Tax Question

I understand that there have been some changes made regarding the qualifying conditions to obtain Entrepreneur’s Relief on the disposal of assets. Can you confirm the changes please?

Tax Answer

Yes, there were two major changes in respect of the relief for disposals on or after 6 April 2019.

Firstly, the holding period of the asset was doubled from 1 year to 2 years for disposals caught by the changes.

The second change is in connection with share disposals.

The previous rules required that the shares were in a trading company or holding company of a trading group and (other than for EMI shares to which slightly different rules apply) the company must have been the individuals’ personal company and the individual was an employee or officer throughout that (now 2 year) period.

To qualify as a personal company the individual must hold at least 5% of the ordinary share capital and that that holding entitled them to at least 5% of the vote. This had been the case since the introduction of the relief.

The new condition is that the shareholding must entitle the holder to at least 5% of the profits and 5% of the assets available to equity shareholders in the event of the winding up of the company. Also, the shareholder must be entitled to at least 5% of the disposal proceeds in the event of the sale of the company.