What is due to happen?
Prior to Christmas, we touched upon the draft Entrepreneurs’ Relief (ER) legislation effective 29 October 2018 and how, unless it was amended or clarified, it would mean 20% Capital Gains Tax (CGT) instead of 10% CGT given the very common alphabet share arrangement.
The good news is that an amendment to the draft legislation is now due to be discussed at the report stage of the Finance Bill in the House of Commons on 8 January 2019.
We have an article on our website: Entrepreneurs’ relief – the devil is in the detail which provides background to the changes originally proposed that we discussed with you.
Potential change to original proposal
The proposed amendment 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.
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.