Members Voluntary Liquidations and Entrepreneurs’ Relief
New 2 Year Qualifying Period for Entrepreneurs’ Relief and The Implications for Members Voluntary Liquidations
The Chancellor of the Exchequer presented his latest budget on 29 October 2018. This is the second year since the budget was moved from March to October/November and this change is a huge benefit to companies. In previous budgets, due to the short amount of time between the presentation of the budget and the new tax year, there has been a rush in directors/members placing their companies into solvent liquidations – Members Voluntary Liquidations (“MVL”) – and distributing the assets prior to the 5 April deadline, thus ensuring they would not be affected by the new – often negative – changes.
With the budget in late Autumn, members now have around four/five months in order to place their company into MVL and for the assets to be distributed. This is also an advantage to Insolvency Practitioners who can benefit from this additional time to plan their work more effectively. Tom O’Keeffe from our London team looks at the changes the Chancellor made to Entrepreneurs’ Relief in October 2018.
Members Voluntary Liquidations and Entrepreneurs’ Relief
The principal change affecting MVLs this year concerns entrepreneurs’ relief (“ER”). ER is a valuable relief that can entitle the claimant to pay Capital Gains Tax on the disposal of their shares at a reduced rate of 10%, better than the usual 20%. To qualify for ER certain conditions must be met during the “holding period”, which usually ends in the event of disposal of their shares.
To qualify for ER, generally, an individual must hold at least:
- 5% of the issued ordinary share capital of the company (measured at its nominal value); and
- 5% of its voting rights.
There was Some Speculation that the Chancellor Would end Entrepreneurs’ Relief
The Chancellor did not stop ER but he did make 2 changes. From 29 October 2018, two further additions apply on top of the ‘5% requirements’ set out above. Shareholdings acquired must also confer an entitlement to at least:
- 5% of the profits available for distribution to equity holders; and
- 5% of the assets available to equity holders on a winding-up.
Additionally, the “holding period” for these shares to be ER compliant will increase from 1 to 2 years from 6 April 2019.
Given the changes proposed, it may be worthwhile to see if you, or any of your clients looking at claiming ER (as part of an MVL procedure), would be affected by this increased “holding period” and if so, please feel free to call us on 0208 088 0633 or contact us to discuss options and how best to proceed. For more information regarding Members Voluntary Liquidations, we have a very handy guide which outlines the process and the key parts and can be found here.
Our experienced team of insolvency practitioners and supervisors based in London, Brentwood, Salisbury and the Cotswolds has successfully managed hundreds of MVLs. Click here to see some of our testimonials.