Entrepreneurs’ Relief Amendments in UK Finance Bill 2019

Important changes to the conditions for entrepreneurs’ relief are proposed in the UK’s Finance Bill 2019.

Entrepreneurs’ relief, a capital gains tax relief designed to support business investment and growth of new enterprises, allows certain individuals disposing of shares or securities in their employer to pay a reduced rate of capital gains tax. Provided the relevant conditions are satisfied, qualifying gains are subject to a reduced capital gains tax rate of 10%, rather than the standard rate of 20%.

Two significant changes to the conditions for entrepreneurs’ relief were announced at the UK Autumn Budget, with draft legislation published in Finance Bill 2019:

• from 29 October 2018, further conditions need to be met for shareholdings to qualify for entrepreneurs’ relief; and
• from 6 April 2019, the “holding period”, during which the conditions for entrepreneurs’ relief must be met, will be extended from one year to two years.

The amendments seek to ensure that the relief is targeted at those with a material economic stake in the business; the explanatory notes published with Finance Bill 2019 state that the government considers longer-term involvement and entitlement to share in the profits and assets of a company to be more characteristic of entrepreneurial activity.