- The holding period has been revised from 1 year to 2 years (ending on the date of sale)
- Personal Company definition has been revised – there are now 2 additional tests
- Changes are immediate i.e. from 29 October 2018
- There is also an additional relief available – if the shareholding falls below 5% due to a new share issue (for cash) – there will be a dry tax charge – from 6 April 2019 (tabled for further debate in the Commons)
2 New Tests:
- Beneficial entitlement to at least 5% of the profit available for distribution to the equity holders of the company (dividends) (to be drafted in a way of actual rather than discretion)
- Beneficial entitlement on winding up of the company, to at least 5% of the assets of the company (winding up)
These two new tests are in addition to the existing tests which are as follows:
- The holder must be Officer of the company
- The holder must hold 5% of the ordinary share capital
- 5% of the voting rights
The shares must now be held for at least two years.
Entrepreneurs’ Relief on gains made before dilution
Under the new rules, where an individual’s shareholding has been diluted below the 5% requirement due to an issue of new shares (for cash), the shareholder can elect to claim Entrepreneurs’ Relief on the gains accrued before the dilution.
This change offers protection to minority shareholders that may lose entitlement to entrepreneurs’ relief due to new investments.
Issues to consider:
- Dividend rights
- Management shares
- Altering the articles to add rights
- Growth shares, which are not part of an EMI scheme
- Alphabet shares )
- Employment related securities, valuation issues and income tax charge
If you have questions on what this might mean for you, or want advice on how we recommend proceeding get in touch with our Corporate Team.