Capital Gains Tax Entrepreneurs Relief and Investors Relief

Transcription

1 Capital Gains Tax Entrepreneurs Relief and Investors Relief

2 Entrepreneurs Relief Entrepreneurs Relief (ER) allows individuals to benefit from a reduced rate of CGT of 10% on qualifying gains. This compares with the normal rate of 20% payable by an individual who is liable to income tax at the higher or the additional rate. There is a lifetime limit of 10 million which means that ER can be worth up to 1 million. What gains are eligible for Entrepreneurs Relief? An individual can claim relief on the gain arising on the qualifying disposal of: the whole or part of a business which the individual carries on alone or in partnership; assets used in such a business at the time it ceases to be carried on; shares or securities in a trading company or the holding company of a trading group. For the purpose of ER, business means a trade, profession or vocation. It is not available in relation to investment activities. ER is not available on the disposal after 2 December 2014 of goodwill to a related company. What conditions need to be satisfied? Business and business assets The principal condition relates to the period of ownership of the asset concerned. Where the asset is an interest in a business, the interest has to have been held throughout the period of 1 year ending with the date of the disposal. Where an asset is disposed of after the cessation of a business, the individual has to have carried on the business throughout the period of 1 year ending with the date of cessation and the asset has to be disposed of within 3 years of that date. Shares and securities On a disposal of shares or securities, throughout the period of 1 year ending with the date of disposal, the individual has to: have held at least 5% of the ordinary share capital (giving an entitlement to at least 5% of the voting rights) in the company, and have been an officer or employee of the company or of a group company. If these requirements are met throughout the year to the date that the business ceases, a disposal made within 3 years of the date of cessation can also qualify. If the shares were acquired after 5 April 2013 on the exercise of an Enterprise Management Incentives option, it is not necessary to satisfy the 5% tests and relief is generally available if the option was granted at least 1 year prior to the date of disposal of the shares. Other disposals which are eligible for relief Qualifying disposals by trustees of shares and securities in a trading company or the holding company of a trading group, or of assets used in a business, are eligible for relief if a beneficiary who is an individual has an interest in possession and the individual either: satisfies the shareholding and employment tests outlined above, or carries on the business in which the assets are used, as appropriate. Where an individual makes a disposal of an interest in a partnership, or of shares or securities, which qualifies for relief under the main provisions, ER can also be claimed on associated disposals. The associated disposal has to be made in connection with the withdrawal of the individual from participation in the business carried on by the partnership or company and the asset has to have been used in the business. This provision enables ER to be claimed, for example, when an individual disposes of premises, used by a trading partnership, on the individual s retirement. If an open market rent has been charged for the use of the asset then no relief is available; if it has been charged at less than an open market rate then relief is given on such part of the gain as is just and reasonable. Particular rules govern disposals of shares in joint venture companies and gains associated with a withdrawal from a partnership.

3 Interaction with other CGT reliefs A paper for paper exchange (e.g. the sale of shares in return for shares and/or loan notes) is generally ignored for tax purposes. However, whilst the original shares may have qualified for ER this might not be the case with the new shares/loan notes. It is therefore possible to elect to ignore the paper for paper exchange provisions so as to crystallise a tax charge on the qualifying disposal. Whilst this ensures the benefit of the ER rate of CGT of 10% it is still necessary to fund the tax charge. Capital gains can also be held-over when disposal proceeds are reinvested in shares or loan notes which qualify for deferral relief under the Enterprise Investment Scheme (EIS) or for Social Investment Tax Relief (SITR). This also means that the gain on a disposal which qualifies for ER could effectively be converted into a non-qualifying gain. For disposals after 2 December 2014, a claim can be made so that ER is available when the deferred gain crystallises on the disposal of the EIS/SITR investment. Investors Relief Investors Relief (IR) is similar to Entrepreneurs Relief in that it allows individuals to benefit from a rate of CGT of 10% on qualifying lifetime gains of up to 10 million. It is, however, entirely seperate so that the potential aggregate value of the reliefs to an individual at current rates of CGT is 2 million. What gains are eligible for Investors Relief? IR can be claimed on the qualifying disposal of ordinary shares in an unquoted trading company or the unquoted holding company of a trading group. What conditions have to be satisfied? The shares have to have been issued to the investor by the company after 16 March 2016 and to have been owned continuously by the investor for at least 3 years. Generally, IR is not available if the investor (or a person connected with the investor) is an officer (e.g. a director) or an employee of the issuing company (or of a connected company). These requirements may be relaxed if the directorship is unremunerated, or the individual becomes an employee more than 180 days after the issue of the shares. IR is not available if the investor receives value from the issuing company (or a person connected with the issuing company) in the 4 years to the third anniversary of the issue date. Value is received if, for example, shares are redeemed or a loan is made. Reasonable levels of remuneration and dividends are permitted in that 4 year period without jeopardising IR. Other disposals which are eligible for relief A share disposal by trustees may qualify for relief if an individual who is a beneficiary has an interest in possession. Interaction with other CGT reliefs Where there is a paper for paper exchange (please see above regarding ER), an election can be made to ignore the paper for paper exchange provisions so as to crystallise a tax charge benefiting from the IR rate of CGT of 10%. How we can help Entrepreneurs Relief and Investors Relief can give rise to significant savings. Unfortunately the legislation is complex and there are many potential traps for the unwary. Advance planning is essential in view of the various qualifying periods. We have significant experience of helping clients to ensure that they maximise the relief available to them.

4 About the firm HW Fisher & Company is a commercially astute organisation with a personal, partner-led service aimed at entrepreneurial small and medium-sized enterprises, large corporates and high-net worth individuals. Our tax team includes eight partners and more than 45 staff specialising in both corporate and personal tax. We are practical, hands-on practitioners, and are experienced in negotiations with HMRC at the highest level. The wider firm is a multi-faceted group with specialist companies active in corporate finance, financial services, property, and mergers and acquisitions. For more information, please contact: Andrew Jones Brian Lindsey Jamie Morrison T T T E akjones@hwfisher.co.uk E blindsey@hwfisher.co.uk E jmorrison@hwfisher.co.uk Toby Ryland Tim Walford-Fitzgerald T T E tryland@hwfisher.co.uk E twfitzgerald@hwfisher.co.uk

5 HW Fisher & Company Business advisers A medium-sized firm of chartered accountants based in London and Watford. Related companies and specialist divisions: Fisher Corporate Plc Corporate finance and business strategy FisherE@se Limited Online accounting and back-office services Fisher Forensic Litigation support, forensic accounting, licensing and royalty auditing FIAC (Fisher IT Asset Consulting) Limited Software and Hardware Asset Management, contract and supplier review, licence and audit defence Fisher Partners Business recovery, reconstruction and insolvency services HW Fisher & Company Limited Advisers to small businesses and start-ups CBF Wealth Management Limited Intelligent wealth management and financial services VAT Assist Limited UK VAT representative HW Fisher & Company and HW Fisher & Company Limited are registered to carry out audit work in the UK and in Ireland. A list of the names of the partners of HW Fisher & Company is open to inspection at our offices. HW Fisher & Company is licensed by the Institute of Chartered Accountants in England & Wales to carry out the reserved legal activity of noncontentious probate in England and Wales. Fisher Forensic, Fisher Okkersen, Fisher Partners, Fisher Performance Improvement, Fisher IT Asset Consulting, FIAC and Kingfisher Collections are trading names of specialist divisions of HW Fisher & Company, Chartered Accountants. HW Fisher & Company Limited, Fisher Corporate Plc, FisherE@se Limited, Fisher Forensic Limited, VAT Assist Limited, CBF Wealth Management Limited, Four Elements Consulting LLP and Fisher IT Asset Consulting Limited, are related entities of HW Fisher & Company, Chartered Accountants. HW Fisher & Company and HW Fisher & Company Limited are not authorised under the Financial Services and Markets Act 2000 but are regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. They can provide these investment services only if they are an incidental part of the professional services they have been engaged to provide. Fisher Corporate Plc is authorised and regulated by the Financial Conduct Authority under reference CBF Wealth Management Limited is an Appointed Representative of Close Brothers Asset Management Limited authorised and regulated by the Financial Conduct Authority under reference This guide provides a summary of the tax legislation and practice as at July It is for guidance only and not a substiute for personalised, professional advice. All liability is excluded for loss or damages that may arise as a result of any person acting or refraining to act in reliance upon this guide. HW Fisher & Company is a member of the Leading Edge Alliance HW Fisher & Company 2017