Entrepreneur Relief Question?

[allenkiernan]

Hi there, I have an opportunity to invest in a trading company (Company X) which would see me acquire 15% of its issued share capital from the existing owner.

The intention is to grow the company in the next 4-5 years, increase its profits and then look to sell it.

I would qualify for entrepreneur relief at that point (over 5% Shareholding, over 3 years' ownership) and any gains would be taxable at a CGT rate of 10% rather than 33%, which is attractive.

But here's the question?

I already have another trading company I run my consultancy business through. Can that company (Company Y) be the entity which buys the 15% in Company X and will entrepreneur relief still apply if I follow that route?

Many thanks

 

[torblednam]

Do you not also need to have been a working director, and spend over 50% of your working time in the service of the qualifying company, throughout the 3 year period...?

 

[allenkiernan]

Thanks for the response and yes, that's correct. I am likely to be spending over 50% of my time working with the trading company and will be a director too. Question i guess is if holding the shares as a company rather than an individual still qualifies for entrepreneur relief?

 

[torblednam]

Thanks for the response and yes, that's correct. I am likely to be spending over 50% of my time working with the trading company and will be a director too. Question i guess is if holding the shares as a company rather than an individual still qualifies for entrepreneur relief?

Sorry, I should have said no, my understanding is that you won't qualify for entrepreneur relief if holding a 15% interest through a company.

You'd better meticulously document your working hours if planning on claiming the relief whilst also continuing to operate your own wholly owned consultancy company.

 

[dublin67]

Your company owning 15% wouldn't work. If your company sells the 15% shareholding then it gets the money. ER is a relief for an individiual owning shares. Your company may be exempt from CGT on the sale of the 15% shareholding under the particpation exempiton provisions. However the proceeds for the sale of the 15% will be inside your company and you then have a problem of paying them out without triggering PAYE on directors fees or taxation on dividends (52/55% depending on amount).