I thought Entrepreneur’s Relief (ER) was for people who owned at least 5% of the shares. Is this still the case?

Shares acquired through purchase or subscription are eligible for ER (subject to the lifetime limit) on sale of the business if the shareholder has:

  • more than 5% of the equity and more than 5% voting rights;
  • is an employee or officer of the company at the time of sale; and
  • has held the shares for over a year.

With effect from April 2012, ER was extended to the holders of shares acquired through an EMI option scheme irrespective of the % of the shareholding or voting rights of the shares; provided the option was granted over a year before the share sale and the shareholder is still an employee of the company.  So the exercise of the EMI option could be on the day of the sale of the shares, but the option must have been granted at least a year earlier for the capital gain to qualify for ER.

There are detailed rules about qualifying businesses and situations in which ER may be withdrawn.

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