HMRC clarify position on alphabet share structures

By James Geary

James Geary

 

As reported in my previous article, the Budget changes around Entrepreneurs’ Relief threw some doubt over whether the relief (which provides a beneficial 10% Capital Gains Tax rate on business disposals) would be available where multiple share classes exist with identical voting and capital rights.

These structures are commonplace and are useful not just to give flexibility as to the allocation of dividends to shareholders but for other commercial reasons.

We have been involved directly with our tax professional body over the few weeks leading up to Christmas, and we are pleased to report that HMRC have now slightly amended the rule change which gives us and our clients peace of mind.

In short, the rule change means that as long as a shareholding gives the holder a right to at least 5% of the sale proceeds on a complete company sale, then Entrepreneurs’ Relief will apply to the disposal (subject to the other qualifying conditions as before).

This is great news for thousands of companies who have used alphabet shares for many years and can now continue with their existing structure without having to worry about the Budget changes.

If you have any specific questions, please contact James Geary, on 01242 776000 or email james.geary@randall-payne.co.uk.

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