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Entrepreneurs Relief – What is a Personal Company?

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.

Entrepreneurs Relief – what is a personal company? — Introduction

A key definition for Entrepreneurs Relief purposes in relation to shares is that of personal company.

A company will satisfy this requirement if the individuals holding satisfies the the following:

  • It represents at least 5% of the company’s ordinary share capital; and
  • It beneficially entitles the individual to 5% of the voting rights, and either:
    • It entitles them to at least 5% of the profits available for distribution and assets on a winding, or
    • It, on a hypothetical sale, entitles them to at least 5% of the proceeds on the disposal of the Company’s ordinary share capital.

Entrepreneurs Relief Changes – from 29 October 2018.

Before 29 October 2018, there was a less onerous test. Under this test, an individual had to be entitled to 5% of the ordinary share capital and voting rights only.

For further details on these, and a number of other changes that took place in the same announcements, please visit here.

Practical Issues

Of course, there will be many cases where this criteria is clearly satisfied. For example where a Company is held equally by only a couple of individuals and there is little complexity.

However, where there are a greater number of shareholders and there is additional complexity in terms of the rights attached to those shares then relief could, in principle, be prejudiced.

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.

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

If you have any queries regarding our article on ‘what is Entrepreneurs Relief?’ or Entrepreneurs Relief in general then please do get in touch.

 

 

 

 

Entrepreneurs Relief – what is a personal company? – last updated on 16 November 2019

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