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Entrepreneurs’ relief: definition of a ‘personal company’

Entrepreneurs’ relief reduces the amount of Capital Gains Tax paid on disposals of businesses, or shares in a personal company, by offering a reduced 10% tax rate on up to £10 million worth of lifetime gains.

The relief applies to individuals, whether operating as sole traders or in partnership, or through a corporate vehicle. It also applies where the business assets are held by the trustees of a settlement. Companies are not eligible for entrepreneurs' relief.

There is a lifetime limit on the amount of entrepreneurs' relief that can be claimed by any one individual. Under the current rules, the maximum amount of gains that may benefit from entrepreneurs' relief is £10m. All past claims to entrepreneurs' relief, since the rules were introduced in 2008, count towards this limit.

Current law for entrepreneurs’ relief is included in Chapter 3 of Part 5 Taxation of Chargeable Gains Act 1992, in particular at section 169S.

Legislation will be introduced in Finance Bill 2019 to add 2 new conditions to the definition of an individual’s personal company in section 169S(3).

Both conditions, as well as the existing ‘share capital’ and ‘voting rights’ conditions must be met. The new conditions require the individual to be beneficially entitled to at least:

  • 5% of the company’s distributable profits

  • 5% of its assets available for distribution to equity holders in a winding up

References to the company include any other company which is a member of the same group.

The same 2 new conditions are added to:

  • the conditions for relief on associated disposals in section 169K(1B), so that they must both be met in relation to a material disposal consisting of shares before an associated disposal of an asset can qualify for relief.

  • the conditions for the withholding of relief on goodwill at section 169LA(1), so in addition to the existing 2 conditions, if either of the new conditions is met following a disposal of goodwill to a close company, then relief will not be due.


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