Following the Spring Statement, the Treasury released a consultation.
The Government is seeking views on changes to Entrepreneurs’ Relief to “ensure that it does not discourage entrepreneurs from seeking external finance for their companies”.
Entrepreneurs’ Relief was introduced in 2008 and provides a 10% rate of Capital Gains Tax for gains on qualifying disposals of business assets.
This compares to the main rates of CGT, which are currently 10% or 20% depending on the taxpayer’s annual income, with gains made on residential property and in respect of carried interest received charged at 18% or 28%.
The objective of ER was to “promote enterprise by offering a reduced rate of tax to individuals who, with significant initiative and risk, have contributed to the creation and growth of a business”, the Government said.
A statement read: “At present, entitlement to the special 10% rate of capital gains tax may be lost when an entrepreneur’s company issues new shares and as a result causes their personal stake to fall below 5%.
“The proposal announced at Autumn Budget 2017, as detailed in this consultation, allows an individual in this position to elect to be treated as if they had disposed of their shares and reacquired them at their market value just before the time the company issued new shares.
“The individual may claim Entrepreneurs’ Relief on that gain either at the time of election, or on a future disposal of shares.”
The consultation closes on 15 May 2018.