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Business Services  •  Business Tax  •  Entrepreneur's Relief  •  exit strategy  •  Personal tax  •  Uncategorized

Joint venture share ownership now excluded from entrepreneurs relief  

By Lesley Stalker on 21 April 2015

Following the Budget 2015 and with immediate effect, new restrictions to the availability of entrepreneurs’ relief (ER) have been introduced which have an impact on share disposals where joint venture ownership is involved.

By way of background, one of the qualifying conditions in order for entrepreneurs’ relief (ER) to be available on a disposal of shares is that the shareholder must hold at least 5% of the company’s share capital and voting rights. In order to circumvent this condition, it has been common practice for shareholders owning less than 5% of the shares in a trading company to join together and place their shares into the ownership of a separate company (the joint venture) which itself then owns >5% of the trading company. The individual shareholders will each own >5% of the joint venture company and the result, with tax planning, could be that they would effectively receive the benefit of entrepreneurs’ relief (ER) on a disposal of shares in the trading company.

The availability of ER has now been removed in this situation, further extending the restrictive conditions in place for disposals involving goodwill transfers into companies owned by the same individuals. In practical terms this means that capital gains tax in these situations is now payable at the full rates of either 18% or 28% instead of the reduced rate of 10% which applies where a disposal qualifies for ER.

Individuals who directly own >5% of the share capital and voting rights of a trading company (or have acquired a lesser number of shares through an Enterprise Management Incentive (EMI) share option scheme) continue to qualify for entrepreneurs’ relief (ER) on a disposal of their shares, providing all other qualifying criteria are met.

If you find yourself in this situation, or you wish to incentivise staff with shareholdings of less than 5% in your company, whilst ensuring they will qualify for ER on a disposal of those shares, please contact Lesley Stalker by emailing las@rjp.co.uk

 

 

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Following the Budget 2015 and with immediate effect, new restrictions to the availability of entrepreneurs’ relief (ER) have been introduced which have an impact on share disposals where joint venture ownership is involved.

By way of background, one of the qualifying conditions in order for entrepreneurs’ relief (ER) to be available on a disposal of shares is that the shareholder must hold at least 5% of the company’s share capital and voting rights. In order to circumvent this condition, it has been common practice for shareholders owning less than 5% of the shares in a trading company to join together and place their shares into the ownership of a separate company (the joint venture) which itself then owns >5% of the trading company. The individual shareholders will each own >5% of the joint venture company and the result, with tax planning, could be that they would effectively receive the benefit of entrepreneurs’ relief (ER) on a disposal of shares in the trading company.

The availability of ER has now been removed in this situation, further extending the restrictive conditions in place for disposals involving goodwill transfers into companies owned by the same individuals. In practical terms this means that capital gains tax in these situations is now payable at the full rates of either 18% or 28% instead of the reduced rate of 10% which applies where a disposal qualifies for ER.

Individuals who directly own >5% of the share capital and voting rights of a trading company (or have acquired a lesser number of shares through an Enterprise Management Incentive (EMI) share option scheme) continue to qualify for entrepreneurs’ relief (ER) on a disposal of their shares, providing all other qualifying criteria are met.

If you find yourself in this situation, or you wish to incentivise staff with shareholdings of less than 5% in your company, whilst ensuring they will qualify for ER on a disposal of those shares, please contact Lesley Stalker by emailing las@rjp.co.uk