We advised in January that changes might be made to Entrepreneurs’ Relief, which proved correct. Rumours are now circulating that further changes might be made to the relief. With the Chancellor’s second Budget due to take place on 8 July, what should affected business owners do?


Entrepreneurs’ Relief currently reduces the Capital Gains Tax rate from 28% to only 10% on up to £10m of qualifying gains – a saving of up to £1.8m. To qualify, there must be a disposal of shares in a company, an interest in a partnership, or certain assets used in a business. Additionally, claimants must, for the whole of the 12 months leading up to the disposal:

  • own 5% or more of the issued nominal share capital (or a partnership share), with 5% or more of the voting rights; and
  • be a director, company secretary and/or an employee of the business (or be a partner in it).

The business must be a trading company (or partnership) or the holding company of a trading group.


In the March 2015 Budget, the Chancellor announced (with no prior consultation and with immediate effect) that companies would no longer qualify as trading companies by virtue of their participation in a joint venture or partnership. These rules were intended to catch a narrow range of structures which the Government thought abusive, but they are actually wide-ranging and mean that a number of innocent structures involving partnerships also no longer qualify for the relief.

The Budget also introduced a rule preventing Entrepreneurs’ Relief from being claimed on the disposal of certain assets used in a business unless the claimant also reduces his interest in the capital of the business by at least 5%.

These changes were in addition to those announced in December 2014, which denied Entrepreneurs’ Relief on the transfer of goodwill to certain companies controlled by five or fewer shareholders.


The Government knows that businesses and their owners particularly value certainty and stability in tax policy. Nevertheless, rumours are now circulating that the Chancellor might meddle further with Entrepreneurs’ Relief to restrict claims only to employees of a business. This would mean that officers who are not also employees (i.e. non-executive directors and, potentially, company secretaries) would be prevented from claiming the relief.

Other rumoured changes include the abolition of the requirement that claimants only need 5% of the nominal (as opposed to the economic) share capital in the company, which, if true, would restrict business owners’ ability to distribute shares among family members and others so as to maximise the availability of the relief.

If changes such as those outlined above were to be made, they would affect countless family businesses where several members of the family, often in different generations, own shares and have a role as either a director or a company secretary, but do not have any formal employment in the business.

Unfortunately, it is difficult to assess the credibility of these rumours. However, they would be easy to achieve and they would have some logical coherency, so they should probably be taken seriously. It may also be relevant that HMRC has lost a number of recent cases on related points in the Tax Tribunal, so it may well be keen to tilt the balance in its favour in future cases.


This year’s second Budget is due to take place on 8 July. Other changes to the CGT regime are widely anticipated. For example, it is rumoured that the Government may increase the headline rate of CGT from 28% to 35%, or may even harmonise Income Tax and CGT rates, resulting in a maximum CGT rate of 45%. Significantly in this context, the Government’s proposal to pass a law to prevent certain tax rises in this Parliament does not extend to CGT. It follows that it has never been more important for business owners and their families wishing to rely on Entrepreneurs’ Relief now or in the future to take prompt advice.

Business owners who had their fingers burned by the recent Entrepreneurs’ Relief changes (and those who avoided it last time) would be well-advised to review the ownership structures of their businesses as soon as possible.

If you are concerned about the rumoured changes preventing non-executive directors and company secretaries from claiming the relief, and if circumstances permit, you may wish to put in place employment contracts for affected individuals before 8 July. Fortunately, the current Entrepreneurs’ Relief rules and HMRC guidance indicate that full- and part-time employees can claim the relief however many, or few, hours they work in the business and it may be possible to formalise current informal working arrangements with the minimum of additional requirements. However, the law in this area is complex and it is important to take specialist advice.