In our monthly roundup of employment tax developments, Jackie Hall, partner at RSM discusses the impact of entrepreneur’s relief on employee share schemes and the uncertainty caused by the lack of a timeframe for the government’s Good Work plan
Entrepreneur’s relief changes
Changes in the qualifying conditions for entrepreneur’s relief (ER) are likely to have an impact on many employee share plans. Where ER is available, gains of up to a lifetime limit of £10m may be charged at a reduced rate of capital gain tax (CGT) of 10%.
But there are conditions to be met in the case of company shares, one of which is that the shares must be held in a company which qualifies as the individual’s personal company.
Significant changes have been made to the definition of an individual’s personal company with effect from 29 October 2018, and therefore affected arrangements may have already ceased to qualify for ER.
Up until 28 October 2018 an individual needed to only hold 5% of the share capital and voting rights of a company, throughout the qualifying period. Many share plans will have been implemented based on this legislation.
