Budget 2016: Entrepreneurs’ relief on goodwill on incorporation

Finance Act 2015 introduced changes to entrepreneurs’ relief (ER) that stopped individuals from claiming ER on incorporation of a trade where the proprietor became a related party (broadly a participator) in relation to the company.

Finance Bill 2016 will include changes to these provisions to allow an individual to claim ER in respect of gains on the disposal of goodwill to a company where the individual owns less than 5% of the shares and less than 5% of the votes in the acquiring company.

Relief will also be available where the individual holds 5% or more of the shares or votes if the incorporation is part of arrangements for the company to be sold to a new independent owner.

These changes will apply to disposals on or after 3 December 2014.

These measures address some concerns in relation to the Finance Act 2015 provisions. An individual may retain a small interest in the acquiring company in order to facilitate a smooth transition to the new owners. Prior incorporation of a business may be a requirement of a third party purchaser, and without this relaxation the vendor would be denied ER on a commercially driven third party sale.