Changes to Entrepreneurs' Relief

Increase in the minimum qualifying period

The minimum period throughout which certain conditions must be met to qualify for Entrepreneurs' Relief (ER) is being increased from one year to two years. This has effect for disposals on or after 6 April 2019, except where a business ceased before 29 October 2018. Where the claimant's business ceased, or their personal company ceased to be a trading company (or the holding company of a trading group) before 29 October 2018, the existing one year qualifying period continues to apply.

The new 5% rules for company shareholders

To qualify for ER, the company needs to be an individual's 'personal company'. This means that an individual must, throughout the relevant qualifying period:

  • be a company employee or office holder
  • hold at least 5% of the company's ordinary share capital; and
  • be able to exercise at least 5% of the voting rights.  

For disposals on or after 29 October 2018, an individual must also satisfy either of the following:

  • distribution tests which require the individual, by virtue of that holding, to be entitled to at least 5% of the company's profits available for distribution to 'equity holders' and 5% of the assets available for distribution to 'equity holders' in a winding up; or
  • a proceeds test which requires the individual, in the event of a disposal of the whole of the ordinary share capital of the company, to be beneficially entitled to at least 5% of the proceeds.
Southampton Office

HJS Accountants
Tagus House
9 Ocean Way
Southampton
Hampshire
SO14 3TJ

Tel: 023 8023 4222

Winchester Office

HJS Accountants
6 Charlecote Mews
Staple Gardens
Winchester
SO23 8SR

Tel: 01962 842000

Reading Office

HJS Reading
3 Richfield Place
Richfield Avenue
Reading, Berkshire
RG1 8EQ

Tel: 0118 951 1115