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CGT Entrepreneurs’ Relief enables individuals who dispose of all or part of a business at a gain to pay CGT at a rate of 10% (subject to a lifetime limit of £10m of qualifying gains per individual).

Unfortunately, in the Budget on 29 October, the Chancellor announced a significant tightening up of the conditions that must be met in order for the relief to apply.   These new conditions feature in the Finance Bill and may result in individuals no longer being eligible to claim the relief.

Minimum ownership period

Firstly, for disposals made on or after 6 April 2019, an individual must hold the business interest for a minimum 24-month period (currently 12 months) in order to claim the relief.  This change, whilst unwelcome, is relatively uncontroversial.

“Personal company” definition

The second change applies to individuals holding shares in trading companies and applies to disposals on or after Budget Day.  Two new conditions are being added to the definition of an individual’s “personal company”.  As well as holding at least 5% of the ordinary shares and voting rights, the individual shareholder must also now be entitled to 5% of the distributable profits and 5% of the assets available to equity holders on a winding up. 

These additional two conditions appear innocuous at first sight but the concern is that they will disqualify individual shareholders from claiming the relief where the company concerned has a more complex share or loan capital structure.

For example, where a company has two or more classes of shares in issue and has the discretion to pay dividends on one class to the exclusion of the others, the concern is that HMRC will argue that no single shareholder is beneficially entitled to 5% of all of the distributable profits of the company.

Similarly, where a company has certain types of preference shares in issue or has received non-commercial loans, it may be difficult for an individual shareholder to demonstrate that they are entitled to 5% of the assets on a winding up available to “equity holders” (which could include certain preference shareholders or loan creditors). 

Take advice!

The Government’s proposed changes have caused considerable alarm and uncertainty and the obvious concern is that many individual shareholders no longer qualify for relief.  Whilst clarification is sought from the Government and HMRC, business owners would be well advised to seek advice on their potential entitlement to claim this very valuable relief.


For any further advice on the subject, please do not hesitate to contact me or your usual Thomas Westcott contact