Briefly, the relief can be claimed on qualifying disposals of an interest in a business, provided all of the criteria are met as to the nature of the business, the size of the holding and the period of ownership, amongst other things. If claimed successfully, qualifying gains on disposals of an interest in the business attract a reduced CGT rate of 10%, up to a lifetime cap of £10m.
Two new measures were announced in the recent Budget, with the aim of tightening the rules on this relief.
Genuine stake in a business
The first is to remove ER from the disposal of an interest in a business which is held within certain company structures.
Where the business is a company, an individual must own at least 5% of the ordinary issued share capital, and carry at least 5% of the voting rights, in order to obtain ER on disposal. Where an individual owns less than the 5% ownership threshold to meet the relief, it is not uncommon for shareholders to team up to form a separate non-trading company to hold their collective shares, with the result that the holding company would own in excess of 5% ordinary shares in the trading company. When the shares in the trading company are sold, they would do so with the intention of claiming ER.
The Chancellor has introduced a measure to remove ER from this type of structure with effect from 18 March 2015. This new rule is designed to restrict ER only to those who genuinely own at least a 5% stake in a trading company. It is thought that this measure may deter investment backing in management buyouts but will otherwise close a loophole which some ownership structures have benefited from over the past few years.
Personal property does not normally attract ER. However, assets owned personally by an individual, but used in their personal business, can benefit from ER, provided that the sale is linked to the individual's disposal of their business interest. This is known as an "associated disposal".
Previously, there was no requirement as to how much of the individual's business interest had to be sold along with the asset. However, new measures introduced in the Budget mean that, with effect from 18 March 2015, there must be at least a 5% reduction in the individual's ownership of the underlying business for the individual to claim ER on the associated disposal of personal assets.
This measure is intended to prevent individuals claiming ER on the sale of assets held personally where they are not making a meaningful withdrawal from the business in which they are used. The Treasury has forecast an annual uplift in receipts of £45m as a result of this new rule.
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