Proposed changes to the definition of a personal company for Entrepreneurs' Relief have been amended as Finance Bill 2019 goes through parliament, to offer an alternative, less stringent test.

At Budget 2018 it was proposed that, for disposals on or after 29 October 2018, for a company to be an individual’s personal company for Entrepreneurs' relief purposes, the claimant must, throughout the relevant period, have at least:

  • A 5% interest in the distributable profits of the company and
  • A 5% interest the assets available for distribution to equity holders in a winding up

The proposed finance bill amendment provides that either the above two new conditions must be met, or the claimant must instead have:

  • An entitlement to at least 5% of the sales proceeds on the disposal of the ordinary share capital of the company.

The government has said that the changes to the personal company definition are intended to ensure that taxpayers disposing of shares have a minimum economic stake in the company. The proposed amendment is to allow claimants to use their entitlement to the sales proceeds of the company as evidence of this stake where they cannot show an entitlement to the profits and assets of the company.

Links to our guides:

Entrepreneurs' relief 
A comprehensive guide to everything you need to know about entrepreneurs relief including pitfalls to look out for.

External links:

Amendments to Finance Bill 2019