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bigduckontax, Accountant
Category: UK Tax
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do I qualify for entrepreneur relief.

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From september 2011 until september 2013 I worked at a limited company and held 10% of shares with voting rights. I left two months ago. I still have 10% of the shares but no longer have voting rights. If the company is sold, do I qualify for ER?

Hello, I'm Keith and happy to help you with your question.

HMRC guidance on ER is as follows:

'Entrepreneurs' Relief

Entrepreneurs' Relief allows individuals and some trustees to claim relief on qualifying gains made on the disposal of any of the following:

All or part of a business

The assets of a business after it has stopped trading

Shares in a company

The relief applies for the years 2008-09 onwards. There is a maximum lifetime limit of Entrepreneurs' Relief you can claim.

Who qualifies?

The relief is available for you as an individual if you:
are in business, for example as a sole trader or as a partner in a trading business

Hold shares in your personal trading company

Conditions you must meet

Depending on the type of disposal, you need to meet certain qualifying conditions throughout a qualifying year.

For example, you must have owned the business during the year that ends:

On the date your business was disposed of - if you're selling all or part of your business

On the date your business ceased - if your business has ceased

From what you say if the company is taken over and presumably your shares too as is normal then ER would appear to apply. ER helps reduce the capital gain realised from the share sale for the purposes of assessing any Capital Gains Tax due.
Customer: replied 2 years ago.
But if I left 2 months ago I would not be an employee for whole 'qualifying year' - that ends the day the business was sold. Does that make a difference ??
With respect I was under the impression we were dealing with your 10% shareholding in the company and any ER available on disposal thereof. In that situation your position as an employee is not relevant. It is the share disposal date which is the key.

HMRT guidance [edited] says:

'ER must be claimed, by the individual in writing by the first anniversary of the 31 January following the end of the tax year in which the qualifying disposal takes place, that is one year and 10 months from the end of the tax year in which the qualifying business disposal is made. For a qualifying business disposal in the tax year 2012–13 (ending on 5 April 2013) you must make a claim for Entrepreneurs’ Relief by 31 January 2015.'
Customer: replied 2 years ago.

I think there's confusion with the terms in the hmrc guidance . 'personal company' means you are an employee and hold at least 5% shares with voting rights. It also says 'The one-year qualifying period ends generally on the date of disposal of the shares or securities.' So if the shares were to be disposed of on 30 Dec (say), do I need to satisfy the conditions of it being a 'personal company' for the 12 months preceding 30 Dec that year? Or does the fact that it's not a 'personal company' on date of disposal not matter? Thanks.

I agree that HMRC guidelines are sometimes difficult to interpret, but it is accepted that the disposal of a shareholding in a company, particularly a private one, cannot immediately be achieved. The 'one year qualifying period' refers to share sales and we know that as far as you are concerned it was a personal company though matters might have changed after your employment terminated. I feel that a claim for ER would be successful should you need it. Remember you can make GBP 11,900 of gain before incurring CGT liability and maybe not need any ER at all. It all depends in simple terms upon the actual capital gain, the difference between the price you received and the cost of purchase and maybe some other capital losses brought forward from earlier tax periods.
Customer: replied 2 years ago.

Sorry for the delay. So are you saying that even if I'm not an employee, I can still qualify for ER?

Yes, indeed. ER rules do require you to be an employee either as a director, partner, or a mere employee. It is designed to relieve an investor of the otherwise very high charges to CGT which might apply, effectively on cashing in his interest by extending his CGT annual personal allowance. There are time limits laid down. Everyone accepts that it takes time to arrange disposal of shares in private companies so there is time latitude. HMRC advise:


Tax year when you sold or closed your business; deadline to claim Entrepreneurs’ Relief is:-

2012 to 2013 31 January 2015
2011 to 2012 31 January 2014
2010 to 2011 31 January 2013'
bigduckontax, Accountant
Category: UK Tax
Satisfied Customers: 2772
bigduckontax and other UK Tax Specialists are ready to help you
Thank you for your support.
Customer: replied 2 years ago.

Hi, I wanted to follow up on this - can you point me to any official guidance or material that supports your answer? I am neither a director, partner nor employee.

For the purpose of ER that is irrelevant. The important thing is that you, as a shareholder, were in at the start.

Try Google and put Entrepreneur Relief in the question bar. The first item to come up is HMRC's full and comprehensive information on the subject.
Customer: replied 2 years ago.

I have read the HMCR guidance, but it seems to make it clear that I must be an employee or officer. Why do you say it is irrelevant but important that I was in at the start?


If you can you point me to the right part in HMRC's guidance that would be much appreciated.

I have quoted HMRC's advice verbatim in earlier responses to your initial question.

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