Beer Mergers
Business Sales : Mergers & Acquisitions : Corporate Consultancy

Beer Mergers Limited is an independent, specialist corporate advisory firm, a "boutique" operation focusing specifically on sales and acquisitions in the small business sector.

Welcome to Beer Mergers

The Autumn Budget

 

Following the recent Autumn Budget, we’re breaking into our current series of blogs on MBO’s, with a short note about changes in the budget that will affect the future sales of private UK businesses.

It was widely feared that entrepreneurs relief, which has remained unchanged at 10% for many years, would be an easy target for the Chancellor, even potentially abolishing it altogether. Happily for small business owners, there has been only a small amount of tinkering with that relief. The key changes are summarised below.

• To recap, Entrepreneurs’ Relief is a preferential capital gains tax rate of 10% available to individual shareholders who own at least 5% of a company’s ordinary share capital and at least 5% of the voting power in the company.

• Two additional tests have been introduced, these importantly with immediate effect.

• Firstly, in addition to giving the shareholder at least 5% of the votes, the ordinary shareholding must also give at least 5% of the company’s distributable profits available to ordinary shareholders, and 5% of assets in a winding up.

• This means that any share structure which involves more than one share class should be reviewed carefully now if any of the shareholders intend to claim Entrepreneurs Relief on a future disposal of those shares.

• This applies especially to structures involving growth shares or preferred ordinary shares, or any structure where certain shares are either not entitled to dividends or return on a winding up of the company, or alternatively where a share class has preferential dividend or winding up rights.

• Secondly, at present in order to be eligible for Entrepreneurs’ Relief, an individual must meet certain qualifying conditions for a continuous period of 1 year prior to making a disposal. For a shareholder in a private trading company/group, the main conditions are that the shareholder must be a director or employee, and have a 5% shareholding throughout the relevant period prior to disposal.

• The change is that for disposals from 6th April 2019 onwards, the qualifying period is being extended from 1 to 2 years.

• This simply means that owners will need to plan more in advance to ensure the desired shareholding structure is in place at least 2 years before any intended disposal.

The absence of serious changes to Entrepreneurs Relief will be seen in most quarters as a good thing, with minimal worsening of the existing situation. However, now as before, while Entrepreneurs’ Relief offers a potential boost for business owners, its complexities require careful navigation, and detailed understanding of recent legislation. Individuals looking to rely on the relief would be well-advised to conduct an appropriate tax audit or seek specialist advice.

Posted on by Mike Halls

Leave a Reply

Your email address will not be published. Required fields are marked *

Welcome to Beer Mergers
Beer Mergers
Email: mail@beermerger.com | Telephone: 01959 565191 | © 2014 Beer Mergers Limited