Budget 2016: The rise of Entrepreneur Investor Relief

Background

The 2016 Budget again proved to be perfect opportunity for our fine Chancellor to tinker with Entrepreneurs’ Relief (ER) – one of the most attractive reliefs provided to entrepreneurs.

However, in contrast with some of the previous tinkering to the regime, these changes were generally of a positive nature and should generally increase the availability of the relief.

The most positive being the introduction of the new Entrepreneur Investor Relief.

Outline of the changes

To summarise:

  • The headline change is the extending of ER to shares held by external investors – ie persons who are  not employees or directors (“Entrepreneur Investor”); and
  • Other amendments which have largely been made to mitigate the impact of previous tinkering to the regime.

This note concerns itself with the new relief Entrepreneur Investor Relief.

The all-new Entrepreneur Investor Relief

Up to now, and since its introduction in 2008, ER has only been available to individuals who are directors or employees of the company (or a company in the same group) in question. Of course, there are other conditions which also need to be met.

However, George Osborne announced a planned extension to share sales by external investors. The Budget referred to this as “investors’ relief”.

The all-new relief will apply where the shares being sold are:

  • in an unlisted trading company or unlisted holding company of a trading group;
  • acquired by the investor by means of a subscription for shares and the individual gives new consideration for the shares;
  • are held for an unbroken period of three years which starts on or after 6 April 2016; and
  • are being sold by an investor who is neither an employee / director of the company (or of another company in the same group).

One really important point to note is that the relief will only apply to shares that are issued on or after 17 March 2016. This means that it will not benefit any existing shareholdings held at that date.

The announcement sets out that Entrepreneurial Investors’ Relief will be subject to  lifetime cap of £10m. After looking at the subsequently published Finance Bill 2016 this £10m will be an additional amount sitting alongside the £10m lifetime limit which exists for the ‘general’ ER.”

 

If you, or your client’s, have any queries about Entrepreneur Investor Relief or related issues in general then please let us know.

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