With today being the last working day before Christmas for most, the Treasury has delivered us an early Christmas present!
An amendment has been tabled to the draft entrepreneurs’ relief (ER) legislation which was set to unintentionally prevent a number of companies from claiming the relief. The amendment will be discussed at the report stage of the Finance Bill in the House of Commons on 8 January and, all being well, will be passed through to form part of the Finance Act.
Our previous article; Entrepreneurs’ relief – the devil is in the detail provides background to the changes originally proposed.
The proposed amended to the draft legislation retains the distributable profits and winding up tests, for the two year qualifying period, but they have now been merged into one test. In addition, a separate test has been added as an ‘or’. So, in other words, you either meet the combined distributable profits and winding up test, or you satisfy the new test.
The new test is that the individual is beneficially entitled to 5% of the proceeds on a disposal. The way that it is current worded is that, to qualify for the period (either one or two years); you look at the date of disposal. If, at that point, you are beneficially entitled to 5% of the proceeds and it is reasonable for it to be assumed that the individual is so entitled (and ignoring any anti-avoidance arrangements) you are then deemed to have satisfied the test for the entire qualifying period.
Therefore, providing you are entitled to 5% on disposal, you will be deemed to have been entitled for the whole qualifying period.
This is good news for companies with more than one share class who, providing they can pass the new test should still be able to claim ER. Until this new clause is debated, passed and the Bill reaches Royal Assent, there is still some time for things to change, but it looks like we may be heading in the right direction and amendments to Articles may not be required.
If you have any questions, please get in touch with your usual tax contact or Nick Haines on 01242 237661.