CIOT comments on notification of ER Finance Bill changes

Released 21 December 2018

The Chartered Institute of Taxation (CIOT) has published details of a response from HMRC in relation to representations made on proposed changes to entrepreneurs’ relief (ER).

The 2018 Autumn Budget contained details of two additional conditions to the definition of ‘personal company’ for the purposes of ER, which would take effect from 29 October 2018. Following the announcement, a number of concerns were raised about both how the tests would operate in practice. Representations were made by a number of professional bodies and individual firms about a range of potential unintended consequences.

The Institute has subsequently been notified by HMRC that the government has tabled an amendment to the clause, details of which can be found here.

Broadly, the amendment will add an alternative test based on the shareholder’s entitlement to proceeds in the event of a sale of the whole of the ordinary share capital in the company, which can be used instead of the tests based on profits available for distribution and assets on a winding up. HMRC comments that ‘the original tests have been left in to provide certainty to those with straightforward company structures, but the new test will help those who are not able to meet the original test for commercial reasons, and does not rely on the definitions in the Corporation Tax Act 2010’.

Further information can be found here.

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