Budget 2015: Entrepreneurs’ relief – restrictions for use of joint ventures

Where an individual does not satisfy the 5% or more shareholding requirement for ER purposes, the use of a joint venture (JV) company arrangement provided a way in which ER could be secured. Under the arrangement, the individual would own 5% or more of voting shares in a company (A) which itself owns 10% or more of the shares in a JV company (a company in which 75% of its shares are owned by five or fewer persons).

Company A is then treated as carrying on the trade conducted by the JV company to the extent of its shareholding in the JV company and would be treated as a trading company for ER purposes irrespective of whether or not it carried on a trade on its own account.

With effect for disposals on or after 18 March 2015, the definitions of trading company and holding company of a trading group, for ER purposes only, do not take account of activities carried on by a JV company where company A does not carry on a significant trade of its own.

This measure will mean that many of the JV structures put in place to secure ER for individuals who would not satisfy the 5% shareholding condition in the main trading company will now be ineffective and will have to be reviewed.