Tax advice: Must own 5% of ordinary shares to qualify for CGT entrepreneurs relief

In order for a shareholder to qualify for capital gains tax (CGT) entrepreneurs relief on the disposal of their shares, they must be an officer or employee of the company (or group) and hold 5 per cent or more of the company’s ordinary share capital and voting rights for 12 months prior to the disposal. The company must also be a trading company or the holding company of a trading group throughout the same 12 month period.

In a recent tax case, the judge agreed with HMRC that in determining whether or not the shareholders held the required 5 per cent of the ordinary share capital, all of the company’s shares should be considered except those with a fixed rate of dividend (preference shares). A lower court had previously decided that shares with no entitlement to dividends and voting rights could be disregarded.

As announced at Autumn Budget 2017, the government will consult in spring 2018 on how access to the relief might be given to entrepreneurs whose holding in their company is reduced below the normal 5 per cent qualifying level as a result of raising funds for commercial purposes by means of issues of new shares. Allowing relief in these circumstances would incentivise entrepreneurs to remain involved in their businesses after receiving external investment.

Whether you are looking to save on income tax, capital gains tax, inheritance tax, or all three, there are various options available to you. We work across a broad range of sectors, advising entrepreneurial people with an appetite for financial growth.

For further information about how we assist, contact your usual Beavis Morgan Partner.