Changes to entrepreneurs’ relief

The measure

Entrepreneurs’ relief applies a reduced 10% capital gains tax rate where an individual sells their business or shares in their employer. To qualify, they must have held the interest for at least 12 months prior to sale.

The government have announced that, for sales occurring on or after 6 April 2019, the required holding period will be extended to 24 months.

To qualify for entrepreneurs’ relief on the sale of shares, an individual must be an employee or director of that business and own shares entitling them to at least 5% of the votes in the company and at least 5% of the ordinary share capital. The company must also be a trading company (or the holding company of a trading group).

It was announced that, with effect from 29 October 2018, disposals of shares will only qualify for entrepreneurs’ relief where the individual’s shares also entitle them to at least 5% of the company’s distributable profits and at least 5% of the company’s net assets.

This does not affect shares acquired under the enterprise management incentive scheme (where there is no minimum shareholding requirement).

Following on from consultation earlier in 2018, updated draft legislation has been published that will, from 6 April 2019, permit individuals to elect to crystallise a capital gain at the time of a genuine commercial share issue in which they are diluted below 5%, such that their entitlement to entrepreneurs’ relief is preserved. The taxpayer may also make a second election such that the gain will not be taxed until there is an actual disposal of their shares.

Who will be affected?

Individuals who own an interest in a business or shares in their employer. 

When will the measure come into effect?

The extension to the 5% test will apply to sales occurring on or after 29 October 2018.

The extension to the holding period will apply to sales occurring on or after 6 April 2019.

The changes that permit a taxpayer to crystallise a qualifying gain, apply where the relevant share issue happens on or after 6 April 2019.

Our view

There was widespread speculation in advance of the Budget that entrepreneurs’ relief would be withdrawn. It is pleasing to see that the government has decided to retain this relief. 


Patricia Mock

Patricia Mock


Private Client Services Policy Lead