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Entrepreneurs Relief Conditions

Author

Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

Understanding The Conditions of Entrepreneurs Relief – An Introduction

The conditions for Entrepreneurs Relief depend on whether we are considering a disposal of:

  • Shares / securities; or
  • other assets

Entrepreneurs Relief & Shares / Securities

A taxpayer may claim Entrepreneurs Relief on gains on the disposals of shares / securities in company where there is:

  • A material disposal of business assets’, or
  • disposal associated with a relevant material disposal’

Trustees may also qualify in certain circumstances on the disposal of shares – this is discussed in a separate note.

For either of these, there must of course be a material disposal for Entrepreneurs Relief to be available.

Material Disposal of Shares / Securities

In order to be a material disposal, one of four conditions must be met.

Condition one – general rule

Throughout a minimum holding period of two years:

  • the company is the individual’s personal company and is trading or the holding company of a trading group, and
  • the individual is an officer / employee of the company or holds such a position in a member of the trading group

Condition two – cessation of trade

This applies where the disposal occurs within three years of the company ceasing to trade (or ceasing to be a trading group members) and throughout the minimum holding period of two years:

  • the company is the individual’s personal companyand is trading or the holding company of a trading group; and
  • the individual is an officer / employee of the company or holds such a position in a  member of the trading group

Condition three – Enterprise Management Incentive (“EMI”)

This applies where there is a disposal is of EMI shares held by the individual from grant for at least two years and throughout that period:

  • the company is a trading company or the holding company of a trading group, and
  • the individual is an officer / employee of the company or holds such a position in a member of the trading group

Condition four – EMI shares and cessation

Finally, this applies where the disposal is of EMI shares and the disposal takes place within three years of the company ceasing to trade (or be a member of a trading group. In addition, the shares are held by the individual from grant for at least two years prior to the cessation and throughout that period:

  • the company is a trading company or the holding company of a trading group, and
  • the individual is an officer or employee of the company or holds such a position in a member of the trading group

Changes to the conditions

It is worth pointing out here that, along with other changes, the test period was one year if the disposal took place prior to 6 April 2019.

This has been doubled to two years for disposals after that date.

Non shares:

Alternative conditions apply to disposals of other assets than shares / securities.

The following non-share disposals are considered in their own separate articles.

  • Business or part of a business;
  • Assets of a business following cessation; and
  • A disposal associated with a material disposal

If you, or your clients, are considering disposing of any business assets then we would recommend obtaining tax advice in advance of such a transaction as relief might be secured with some pre-sale planning.

If you have any queries regarding Entrepreneurs Relief conditions, or the relief in general, then please do get in touch.

For our full and detailed sign post document on Entrepreneurs Relief then please visit here.

 

Entrepreneurs Relief conditions was last updated on 16 November 2019

 

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