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HMRC have published the draft legislation, explanatory notes and some FAQs relating to the new entrepreneurs' relief.
The final explanatory note sums up saying: 'the rules for entrepreneurs' relief are broadly based on the rules for the former retirement relief. But the rules for entrepreneurs' relief are simpler.
'For example, the amount of entrepreneurs' relief does not vary with the period of the individual's involvement with the business, and there is no minimum age limit for entrepreneurs' relief.
'Where the entrepreneurs' relief legislation uses terms that also appeared in the retirement relief provisions (TCGA 1992, ss 163 and 164 and Sch 6), they are intended to have the same meaning unless the entrepreneurs' relief legislation specifically provides a different meaning (as in the case of the definition of a trading company, where the entrepreneurs' relief legislation adopts the definition used for the purposes of taper relief).'
PKF's Lisa Macpherson described the legislation as 'simple and sensible' but added that it is 'a shame that so many entrepreneurs have had to go through a period of massive uncertainty up against a tight deadline because the Treasury rushed through a proposal and did not fully consider the impact on small and medium sized businesses'.
Some 'sensible transitional provisions have been included' in the legislation, said Lisa.
'For example, gains realised on the sale of a business some time ago, but frozen and invested in enterprise investment scheme shares, will qualify for the relief when they are “unfrozen” on sale of the enterprise investment scheme shares after 6 April 2008.'
She outlined two new planning issues that business owners will need to consider.
First, 'business owners selling their company by share for share deals will have to elect to pay CGT in relation to the year of exchange if they are not going to work in the purchasing company and hold at least 5% of its shares'.
Second, she said that 'the rules may encourage family companies to have a number of family members as non-executive directors.
'However, caution is needed: if they are not careful with the capital contributions that each shareholder makes, they could fall foul of the new income shifting rules when dividends are paid out.'
