Changes to Entrepreneurs' Relief
Increase in the minimum qualifying period
The minimum period throughout which certain conditions must be met to qualify for Entrepreneurs' Relief (ER) is being increased from one year to two years. This has effect for disposals on or after 6 April 2019, except where a business ceased before 29 October 2018. Where the claimant's business ceased, or their personal company ceased to be a trading company (or the holding company of a trading group) before 29 October 2018, the existing one year qualifying period continues to apply.
The new 5% rules for company shareholders
To qualify for ER, the company needs to be an individual's 'personal company'. This means that an individual must, throughout the relevant qualifying period:
- be a company employee or office holder
- hold at least 5% of the company's ordinary share capital; and
- be able to exercise at least 5% of the voting rights.
For disposals on or after 29 October 2018, an individual must also satisfy either of the following:
- distribution tests which require the individual, by virtue of that holding, to be entitled to at least 5% of the company's profits available for distribution to 'equity holders' and 5% of the assets available for distribution to 'equity holders' in a winding up; or
- a proceeds test which requires the individual, in the event of a disposal of the whole of the ordinary share capital of the company, to be beneficially entitled to at least 5% of the proceeds.