There were two new announcements affecting Entrepreneurs' Relief (ER) in the 2015 Budget, in addition to measures previously proposed in the 2014 Autumn Statement. Subscribers: please click here for your detailed version of this note, with worked examples.

ER reduces the rate of Capital Gains Tax (CGT) charged on gains made on the disposal of certain qualifying business assets to 10% from the standard 18% or 28%.

Disposals made on or after 6 April 2015

  • Carried interests and disguised remuneration

A carried interest (an investment manager's share of investment scheme profit ) is taxed as a captial gain, and will qualify for ER, providing that lifetime limits and other qualifying conditions are met. Finance Act 2014 includes anti-avoidance measures apply income tax treatment where investment managers' fees are disguised as carried interests. The leglisation defines a carried interest in terms of risk and profit, see Disguised Investment Management Fees.

Disposals made on or after 18 March 2015

  • 1. A change to the definition of a "relevant material disposal" in respect of a disposal of business assets associated with disposal of an interest in a partnership or shares in a company.

ER may apply on the disposal a business asset held privately but used by the individual's partnership or company when it is associated with a disposal of an interest in the partnership or company. 

Under the new rules ER will only apply where there has been a material withdrawal by the individial from participation in the company or partnership. Material means a disposal of 5% of more of the relevant interest. see Entrepreneurs Relief: FA 2015 changes.

  • Restriction in ER in respect of investments in JV companies or partnerships: changes to the definition of a trading company, or holding company of a trading group

ER applies on a material disposal of business assets. Business assets may include a shareholding in a company. The definition ‘trading company or the holding company of a trading group’ is amended so that the relevant company must be a trading company in its own right and no account will be taken of the activities carried on by any joint venture companies that a company is invested in, or of any partnerships of which a company is a member. See Entrepreneurs Relief: FA 2015 changes.

Disposals made on or after 3 December 2014

  • Entrepreneurs' Relief and transfers of Goodwill on incorporation
    ER is no longer be available on the disposal of goodwill and related assets on transfer of a business to a close company, where the individual transferring the goodwill is a related party.  
    • This measure applies to individuals and affects both sole trade and partnership incorporations.
    • It apples for disposals made on or after 3 December 2014.
    • Where the new provisions apply, the ER rate of CGT does not apply to gains on the business’ goodwill; however the tax treatment of gains on other business assets transferred on incorporation are unaffected.
      See Entrepreneurs Relief: FA 2015 changes and  Incorporation and tax
  • Deferred Entrepreneurs' Relief on invested gains

ER is now allowed where a qualifying gain, which has been deferred into investments qualifying for Enterprise Investment Relief (EIS) and Social Investment Tax Relief (SITR), is subsequently realised, see EIS relief.

Corporation tax and intangibles

Although not a CGT matter, it worth noting that inconnection with the ER restriction for incorporation, CTA 2009 has also been amended from the same date to restrict when and how Corporation Tax relief is allowed in relation to internally generated goodwill and certain customer-related intangible assets acquired on incorporation of a business. 

Further reading:

Entrepreneurs' Relief (ER) - our guide to the relief, contains worked examples, case law and planning points.

Incorporation and tax - our guide to incorporation including alternative reliefs in order to avoid a CGT charge on incorporation