When you sell some or all of the shares in your company, you should expect to pay Capital Gains Tax (CGT) on any profits you make. This tax is normally charged at 20% for higherrate taxpayers, but Entrepreneurs’ Relief can reduce the CGT payable to 10%.
To qualify for Entrepreneurs’ Relief you need to be a director or employee of the company and own at least 5% of the ordinary share capital and the related voting rights. New additional conditions require the investor to have a right to either:
1.at least 5% of the dividends and assets on a winding-up, or
2.at least 5% of the total proceeds should 100% of the company be sold.
These conditions must be met for at least two full years ending with the date your shares are sold, or one year where the sale occurred before 6 April 2019.
When new shares are issued to new investors, this can dilute your own shareholding to below the crucial 5% threshold. Where your company issues new shares after 5 April 2019, you can make an election to protect your Entrepreneurs’ Relief.
Don’t forget to tell us if your company is issuing more shares or converting debt into shares, as there is a time limit for making the relevant elections