Entrepreneurs’ Relief following the 2020 Budget

Changes to Entrepreneurs’ Relief made by the Chancellor in the Budget could have a  significant impact on entrepreneurs, owner managed businesses (OMBs) and small to medium sized enterprises (SMEs), for those looking to dispose of all or part of their business or shares.

Key Fact:  the cutting of the lifetime limit for relief of £10m to £1m with effect from the Budget Day (11 March 2020)

The measure will have effect for Entrepreneurs’ Relief qualifying disposals made on or after 11 March 2020.  This will include sales under conditional contracts which have exchanged, but where the conditions precedent to completion have yet to be satisfied.  The rules also provide that the lifetime limit must take into account the value of Entrepreneurs’ Relief claimed previously in respect of qualifying gains.

‘Anti-avoidance’ rules will also be introduced that apply to forestalling arrangements entered into before Budget Day. 

1. Unconditional Contracts

This will apply where an unconditional contract for the sale of an asset has been entered into prior to 11 March, but the contract is completed after that date, the disposal will be treated as taking place when the contract actually completes.  So the £1m lifetime cap will apply in such cases unless:

• The parties to the contract demonstrate that they did not enter into the contract for the purpose of gaining a tax advantage by exploiting the timing rules of section 28 of the Taxation of Chargeable Gains Act 1992; and
• Where the parties to the contract are connected, that the contract was entered into for wholly commercial reasons (with no purpose of exploiting CGT timing rules)

In each case, the seller of the asset must make a claim for Entrepreneurs’ Relief including a declaration that no purpose of the disposal was to exploit the CGT rules.

• Share for Share Exchanges

Section 169Q Elections allow an individual who is exchanging shares which qualify for Entrepreneurs’ Relief for shares which do not in circumstances where they would otherwise be able to defer a CGT charge on the old shares to elect to trigger a disposal and effectively ‘bank’ the relief on the disposal of their old shares.

The changes provide that where shares have been exchanged for those in another company on or after 6 April 2019, but before 11 March 2020 and either both companies are owned or controlled by substantially the same persons or the controlling shareholders of Company A hold a greater percentage of shares in Company B after the exchange than they did in Company A before the exchange and on 11 March 2020, the personal company test, the trading company and the employee/officer test are met in respect of Company B.

So if an election is made after Budget Day, this will apply as though the individual’s disposal happened on the date the election was made, rather than the date of the transaction, so the lower £1m limit applies.

For help and advice on Entrepreneurs Relief, please speak to our Corporate and Commercial team at on 0161 926 9969 or email corporate@mlplaw.co.uk.