Entrepreneurs’ relief

All three of the main Political Parties have included a commitment in their manifestos to either abolish or “review and reform” entrepreneurs’ relief (ER). This sounds like the death knell for ER to apply to the proceeds from company liquidation.

If you are counting on paying 10% CGT on the cash pile in their company, you need to either move fast to secure the relief before it is abolished, or have a plan B.

However, before you rush to liquidate the company, check that all of the ER conditions have been in place for a full 24 months to the cessation of trade or sale. The 12-month qualification period was doubled on 6 April 2019.

The conditions which can trip people up are:

Shareholdings
Did the individual hold 5% of the ordinary share capital for the full two-year period? Where the gain is to be spread between a married couple we need concrete evidence of when shares were acquired, especially if they were gifted between relatives.

Trading
Was the company trading or did the management of investments in the last few years out-weigh any trading activities? This point was examined in the Potter case, see our newsletter on 10 October 2019.

Where the trade wound down it may have changed location or nature in the last few years. In that case it can be difficult to define exactly when the trade ceased. This problem was examined in the Jeremy Rice case.

Written by the Tax Advice Network