Allowing Entrepreneurs’ Relief On Gains Made Before Dilution


As expected, the Spring Statement brought no surprises in relation to tax and pensions. However, a few consultations were announced. One of these is in regard to allowing entrepreneurs’ relief on gains made before dilution.

Currently if you dispose of shares or securities in your personal trading company (i.e. one where you own 5% of shares and voting rights) that disposal will attract entrepreneurs’ relief. This means that any capital gain will be taxed at 10% subject to the lifetime limit of £10 million.

However, in cases where the company issues new shares, this can cause a personal holding to fall below 5% which would mean that a later disposal won’t qualify for entrepreneurs’ relief. As a result, it was announced at Autumn Budget 2017 that an individual in this position can elect to be treated as if they had disposed of their shares and reacquired them at their market value just before the time the company issued new shares. The individual may claim entrepreneurs’ relief on that gain either at the time of election, or on a future disposal of shares.

HMRC has now launched a consultation which focuses on the mechanism which will achieve this extension of the relief. The new rules will apply to gains latent in shares and securities held at the time of fundraising events which take place on or after 6 April 2019.

This consultation will be of interest to individuals, companies, advisers, representative bodies and all others who would be affected by the changes.

The consultation will run until 15 May 2018.

This change in the rules will no doubt be very welcomed especially for those who were losing out on entrepreneurs’ relief and as a result finding themselves in a position whereby gains were taxed at the higher rate of 20%.



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