The first key change was the definition of a personal company for Entrepreneurs’ Relief. Previously, a personal company was defined as one in which the shareholder:
- is an office holder, director or employee of the company or group company; and
- holds at least 5% of the ordinary share capital and of the voting rights of the company.
The shareholder will now also need to hold a 5% interest in the distributable profits and the net assets of the company for the relief to be available on the gain.
As this change will apply to disposals on or after 29 October 2018, the new conditions will need to have been met for a period of 12 months leading up the disposal, which could put imminent sales up in the air for now.
The second key change is the minimum period throughout which certain qualifying conditions must be met for an individual to be able to claim Entrepreneurs’ Relief. This is to be extended from 12 to 24 months.
This change will apply to disposals made on or after 6 April 2019.
Lastly, an individual whose shareholding is diluted below the 5% qualifying threshold due to an issue of new shares will still be able to obtain Entrepreneurs’ Relief on gains made up to the time of the dilution.
This could be a good time for companies to consider raising investment with the issue of new shares as this rule will apply for shares held at the time of fundraising events that take place on or after 6 April 2019.