In Wednesday’s budget, the Chancellor announced the immediate reduction in the lifetime limit applicable to qualifying gains from £10 million down to £1 million for Entrepreneurs’ Relief. The measure will be introduced in the Finance Bill 2020 and you can find the link here.
The change in the lifetime limit comes together with measures to counteract any pre-budget planning that may have been carried out in an effort to lock in the £10 million lifetime limit for Entrepreneurs’ Relief. The new measure works as follows:
- The lifetime limit is reduced with effect from 11 March 2020 and will apply to all qualifying disposals occurring after that date together with any disposals which are caught by the anti-forestalling rules described below;
- The lifetime limit must take into account the value of ER relief claimed in the past. This will impact anyone who has made claims in the past and were expecting to be able to claim up to the £10 million limit on future disposals;
- Rules will be introduced to apply the £1 million where the time of disposal rules under the Taxation of Chargeable Gains Act 1992 have been used to fix the time of disposal as being pre-budget but completion has not yet taken place. This is to counteract the practise of disposing of a business or shares to a newco prior to 11 March 2020 (thereby triggering ER at the pre-budget limits) until a buyer could be found. The £1 million will apply unless:
- The contracting parties can show that obtaining a tax advantage through the use of the time of disposal rules was not the purpose of the transaction; and
- Where the parties to the contract are connected, they can show the contract was entered into wholly for commercial reasons.
- Rules will also be introduced to counteract the use of the election under s169Q of the Taxation of Chargeable Gains Act 1992. In the normal course, where there has been a share for share exchange, the shareholders can elect to crystallise that gain on the share exchange rather than paying capital gains on the subsequent disposal of the rolled over shares. The £1 million limit will apply where:
- The disposal takes place after 6 April 2019 but before 11 March 2020;
- Company A and Company B are owned by substantially the same persons; and
- Company B (being the acquirer) is a trading company, the personal company of the shareholders in Company B and the shareholders in Company A hold a greater percentage of the shares in Company B than they did in Company A.
The link to the Capital Gains Tax Entrepreneurs’ Relief policy paper is here.
If you need advice on Entrepreneurs’ Relief or other tax measures, speak to our tax experts.
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