To qualify for Entrepreneurs Relief on the disposal of shares in an unquoted trading company, the conditions required are that throughout a period of two years (for disposals on or after 6th April 2019):
- The company is the individual’s “personal company” (as defined by s169S TCGA 1992), and
- The individual must have been an officer or employee of the company.
The Finance Act 2019 introduced subsections (7ZA) and (7ZB) into s169I TCGA 1992 which, for disposals on or after 6th April 2019, deem the above conditions to have been met providing the shares were issued on a “relevant business transfer” which requires the shares to have been issued wholly or partly in exchange for the transfer of a business as a going concern, together with the whole assets of the business or the whole of those assets other than cash.
It will be seen that the above mirrors the conditions of the existing “Incorporation Relief” of s162 TCGA 1992. Therefore not all incorporations will qualify. For example, a sole trader or partners in a partnership may own the business premises which they choose to retain rather than transfer to the company. Similarly, if the existing business includes cars the owner may prefer not to transfer these to the company to avoid a company car benefit.
Therefore the individual concerned needs to be aware that, depending on their particular circumstances, they may not meet the Entrepreneurs Relief conditions until the standard two year period has elapsed. With planning, it may be possible to transfer assets such as cars and property outside of the business before the business is transferred to the company. However, it is important to note that what is transferred must be a “going concern” not just a collection of business assets.
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