Consultation Paper on Entrepreneurs Relief

In an upbeat Spring Statement from the Chancellor Phillip Hammond where he made announcements about the end of the £50 note and 1p and 2p coins, a focus on affordable homes, financial support for small house builders and tax breaks for van drivers came the release of a consultation paper to look at furthering an already generous tax break for entrepreneurs.


Affecting a relatively small but important number of individuals, entrepreneurs tax relief is a special rate of tax, set at 10 per cent, for individuals who sell their shares in a qualifying private company. Any capital gains produced as a result of the increase in value of the shares is taxed at the reduced rate of 10% when the shares are sold.


In the announcement the government said it had noted that many entrepreneurs miss out on the tax break if during their ownership of the company they issue new shares which dilutes their total shareholding in the business to below a 5 per cent threshold.


When new shares are issued in a company the money received from other investors buying them is not paid to the entrepreneur but to the company itself. Think Dragons Den.


Calling it a “perverse consequence” upon a company that has grown and become successful and has issued more shares as a means of that growth, the paper proposes to allow entrepreneurs to the tax relief they would have received immediately before the issuance of the new shares, with an option to defer the tax until a later date, probably when they do sell their own shares.


Broadly welcomed by the business community and accountancy firms alike the paper is set to further protect the interests of those that take the risks of invest into UK businesses, or to those who start them up, who in turn pay corporation tax on profits and employ staff who pay income tax and National Insurance.


Whilst I don’t advise my clients upon the detailed tax planning associated with this type of relief, I’m often surprised at how little people know of the legitimate tax reliefs that exist, and often how many have not been alerted to their options by their accountants. If you don’t know what you don’t know you’re not going to be able to enquire about it.


As professional financial advisers we will try our best to ensure we cover all areas of financial planning, both for private individuals and businesses alike. If we can help alert our clients to the possibilities and the opportunities to advance their financial position, we will, even if it’s purely to arm them with information which they take to those that specialise in such areas.



Mark Ireland Chartered ALIBF



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