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How do changes in the Entrepreneurs relief conditions following the budget affect me and when do they come into force?

Thursday December 2018

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.

Draft legislation has also been included in the Finance Bill 2019 which will protect ER for shareholders whose holding is diluted below 5% by a commercial fundraising.

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