Entrepreneurs’ Relief (ER) is an important capital gains tax relief potentially available to both business owners and employee shareholders that can reduce the tax rate on the sale of shares to just 10 percent on the first £10 million of lifetime gains. This can potentially save up to £1 million per shareholder on the sale of a business and as such is an important relief, particularly for private company shareholders. One of the key requirements of the relief is that the shareholder holds at least 5 percent of the Ordinary Share Capital in the company.
A number of recent challenges by HMRC taken to tribunal
There have been three recent cases taken to tax tribunals on what constitutes ordinary share capital for the purposes of both ER and Share Loss Relief. The taxpayer lost in the first two cases and was relatively fortunate to succeed in the third.
We are additionally aware of a number of other HMRC enquiries into ER. Not only is this an area of tax that is potentially important to business owners, it is an area under active review by HMRC.
These cases highlight the importance of ensuring that the qualifying conditions are met, particularly where a company has different share classes, deferred shares, redeemable shares or similar.
It is always important, therefore, to understand the ER status of a shareholding, even if a sale is not immediately on the horizon. If you would like to discuss further, please get in touch with your usual KPMG contact or the named contact below.
Craig Rowlands, Private Client