Some of you may be aware that entrepreneurs relief is a scheme where directors who own 5% or more of a company’s shares, when they come to sell shares in that company, they only have to pay 10% capital gains tax up to a lifetime limit of £10m.
In short, build a business and sell it with only 10% capital gains tax rather than the usual 10% within basic rate tax band and 20% for gains sitting above the higher rate tax band when gains are added to income.
The 5% rule means that previously, if your interest in the business fell below 5%, for example, due to additional shares being issued/sold to others, your would not be able to claim entrepreneurs relief on sale of your shares.
Autumn Budget 2017
In last year’s budget the Chancellor confirmed that this anomaly would be fixed. HMRC has published its paper as part of the up and coming Financial Act 2018/19 (currently a Bill) that will remove this and allow those who previously owned more than 5% of the shares in a company but face a shareholding % dilution following additional share issues will no longer lose entrepreneurs relief but keep it.