Philip Hammond has used the Budget to make changes to Entrepreneurs' Relief. Entrepreneurs’ Relief is a relief from capital gains tax, which reduces the rate of tax on qualifying capital gains to 10%. This is a significant tax benefit for individuals disposing of a business or shares in a company.

The changes announced in the Budget relate to:

  • An extension of the minimum qualifying period from one year to two; and
  • Changes to the definition of a qualifying shareholding.

Extension of the minimum qualifying period

The measure increases the minimum period throughout which certain conditions must be met to be eligible for Entrepreneurs' Relief from one to two years.

This takes effect for disposals on or after 6 April 2019, except where a business ceased before 29 October 2018.

Changes to the definition of a qualifying shareholding

The measure adds two new tests to the definition of a “personal company”, requiring the claimant to be beneficially entitled to at least:

  • 5% of the company’s distributable profits; and
  • 5% of its assets available for distribution to equity holders in a winding up.

The new tests must be met, in addition to the existing tests, throughout the specified period in order for the relief to be due.

The measure will have effect for disposals on or after 29 October 2018.


James Hutchinson, a Corporate Partner at Beale & Company, said:

“Entrepreneurs will breathe a sigh of relief that the Chancellor did not abolish or severely restrict Entrepreneurs' Relief.

Philip Hammond argues that having a material stake in a business and a two year qualifying period is more characteristic of true entrepreneurial activity as distinct from simple investment or speculation.

The changes to the definition of a “personal company” come in immediately, but the two year rule only takes effect for disposals on or after 6 April 2019. I expect we will see a flurry of activity prior to the new tax year, as entrepreneurs seek to take advantage of the old one year qualifying period.

The relevant HMRC Policy Papers are available below:

Capital Gains Tax: Entrepreneurs’ Relief: minimum qualifying period extension 

Capital Gains Tax: Entrepreneurs’ relief: definition of a ‘personal company’