The Chancellor has announced a reduction in the lifetime limit for Entrepreneurs’ Relief together with special measures to combat planning arrangements intended to prevent changes to the relief from taking immediate effect.

For disposals on or after 11 March 2020 and certain disposals before that date:

  • The lifetime limit which applies to gains eligible for Entrepreneurs’ Relief (ER)  is reduced from £10 million to £1 million.

Special anti-forestalling measures are being introduced to ensure that the reduced £1 million limit still applies to disposals entered into, but not completed, before 11 March 2020.

These rules are intended to catch disposals where a new company or other vehicle is used to trigger a disposal which ‘rests on contract’, not completing until a purchaser is found for the business.

  • Such arrangements take advantage of the rule at s.28 TCGA under which the date of disposal for Capital Gains Tax purposes, where the contract is unconditional, is the date of exchange, not the date of completion.
  • Due to the speculation ahead of the budget about changes to ER some business owners may have undertaken such planning to secure relief before changes were introduced.
  • The measure will not apply if it can be shown that:
    • The parties did not enter into the contract to obtain a tax advantage.
    • Where the parties are connected the contract was entered into wholly for commercial reasons.
    • A separate claim, in addition to the usual ER claim, will be required where these exceptions apply.

The anti-forestalling measures will also apply to elections made under s.169Q TCGA 1992. These elections disapply the share for share exchange ‘no disposal’ rules, so that a gain is crystallised by the share exchange, upon which ER is then claimed, instead of being deferred until the new shareholding is disposed of.

Special rules will apply to such elections made on or after 11 March 2020.

  • Shares in a company, Company A, have been exchanged for those in another company, Company B, during 2019/20 but before 11 March 2020.
    • There is no substantial change in shareholders, or in control as a result of the share exchange.
    • Immediately after the exchange the Company A shareholders together hold a greater percentage of the ordinary share capital in Company B than they held in the Company A before the exchange.
    • Company B is their personal company, is a trading company and they are an officer or employee of the company on 11 March 2020.
  • In these circumstances, whilst the date of disposal will remain the pre-budget day date of the share exchange, the new £1million lifetime limit will apply to disposal of the Company A shares.
  • This is to render ineffective any planning whereby a shareholder has sought to ‘bank’ ER at the higher lifetime limit by transferring their shares to another company before budget day, without any real change in the ultimate ownership and in circumstances where they will remain eligible for ER on their new holding.

Links to our guides

Entrepreneurs' Relief: disposal of shares or securities in a company
Entrepreneurs' Relief (ER) is a Capital Gains Tax (CGT) relief that is available on the disposal of business assets, including a disposal of qualifying shareholdings in trading companies or trading groups by an officer or employee.

Date of acquisition or disposal for CGT
When is the date of acquisition or disposal of an asset for Capital Gains tax purposes? When do special rules apply? Why does it matter?

External links

Policy paper: Reduction in the lifetime limit for Entrepreneurs’ Relief: technical note 

Draft legislation 

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