Entrepreneurs’ Relief: last remaining route?

Posted by RM2 at 18:01 on 5 Jun 2015


The Budget has made changes to Entrepreneurs’ Relief (ER), the relief that can reduce Capital Gains Tax (CGT) to 10%, that will affect individuals who hold less than a 5% stake directly in a company carrying on a trade. The measure takes immediate effect and will affect disposals on and after 18th March 2015.

The measure blocks some tax planning structures which were sometimes introduced to preserve or obtain ER that was not otherwise available.

Previously, joint ventures have been used to set up structures under which individuals with only a small indirect stake in the actual trading company could benefit from ER. ER was originally introduced to reward the risk that entrepreneurs take with significant wealth tied up in private companies.

From now on, in order to qualify for ER, an individual must hold at least 5% of a genuine trading company. Where plans have been put in place solely or mainly to allow individuals who would not otherwise have qualified for ER to obtain ER, their tax rate will increase to 18% or to 28% for higher rate tax payers.

But if you have some key employees who you wish to incentivise, there is still a route to ER for those who hold less than 5%.

The Enterprise Management Incentive (EMI) plan allows companies to grant options to their employees and the shares that are acquired under those options will, regardless of the size of the resulting shareholding, qualify for the 10% tax rate (provided that the options were granted at least one year prior to the disposal of the shares).

If you want further information on how to use EMI to incentivise your employees, we can help you.