Recent changes to entrepreneurs’ relief – further clarification from HMRC

Finance Act 2019 (FA 2019) amended the definition of what constitutes a ‘personal company’ for the purposes of entrepreneurs’ relief (ER). Those amendments took effect, broadly, for disposals on or after 29 October 2018. The stated policy objective behind the amendments was to ensure ‘…that the claimant has a true material stake in business in order to claim entrepreneurs’ relief.’

TAXguide 04/19: Entrepreneurs’ relief: Clarification of the new 5% proceeds test looked at the new economic interest test. Following the publication of that TAXguide further questions have arisen on the Finance Act 2019 entrepreneurs’ relief legislation:

A- Condition (i): entitlement to profits and to assets in a winding up
B- Entrepreneurs’ relief: shares or securities: personal company: dilution election

The Tax Faculty has therefore raised questions with HMRC in order to explore these complexities. HMRC’s replies are set out in full in TAXguide 13/19: Further questions on Finance Act 2019 changes. These responses are published with the approval of HMRC and with ICAEW’s thanks to HMRC for their engagement.

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