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Budget 2016: The proposals in detail – to Corporation Tax/Capital Gains Tax Entrepreneurs’ Relief

Entrepreneurs’ relief (ER) will be extended to external investors in unlisted trading companies. This new investors’ relief will apply a 10% rate of CGT to gains accruing on the disposal of ordinary shares held by individuals.

These shares must be subscribed for by the claimant and acquired for new consideration on or after 17 March 2016.

The shares must have been held for a period of at least three years starting from 6 April 2016 and there will be a lifetime cap of £10 million.

In the 2014 Autumn Statement it was announced that it is no longer possible to claim CGT entrepreneurs’ relief against the gains arising on the sale on or after 3 December 2014 of goodwill by a sole trader or partnership to a limited company in which they have a controlling interest.

That restriction was then legislated in Finance Act 2015.

It has now been announced that the relief will still be available provided that the transferor does not receive more than 5% of share capital or voting rights in the acquiring company.

Andy Scott

 

3 Responses to “Budget 2016: The proposals in detail – to Corporation Tax/Capital Gains Tax Entrepreneurs’ Relief”

  1. Alex Dyce says:

    Andy
    What is the definition of an “external investor”?
    Does this cover existing shareholders where the investment may not qualify for EIS?
    Could this cover NEDs who are not eligible for EIS for additional investment into the company directly or via converting share options?
    Thanks
    Regards
    Alex Dyce

  2. Andy Scott says:

    Hello Alex
    Many thanks for your question.
    The proposal does not include existing shareholders. It only relates to new subscribers shares issued on or after 17 March 2016. The term external investor would relate to non directors or employees of a company as under the previous rules they would not qualify for Entrepreneurs’ relief. The proposal looks to benefit NED’s and shareholders that do not qualify for EIS relief.
    The link to the proposal is below
    https://www.gov.uk/government/publications/budget-2016-documents/budget-2016

    • Alex Dyce says:

      Thanks Andy
      Just to be clear about your point that the proposal looks to benefit NEDs and shareholders that do not qualify for EIS relief, in the case where an NED is awarded options that vest and are then exercised with new cash after 17/03/16, then this shareholding would qualify for the lower rate

      The link talks about “extend entrepreneurs’ relief to long term investors in unlisted companies”
      Thanks
      Alex
      Is there a definition of long term – 3 years +?

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