Finance Act 2019 receives Royal Assent – Good news for alphabet shareholders

The Finance Act 2019 received Royal Assent on 12 February 2019, taking into account a number of amendments that were passed in the House of Commons – including, most notably, a change to the new entrepreneurs’ relief (“ER”) rules. 

Owners of companies with different share classes (e.g. alphabet shares) had been concerned that the new rules, which were first announced in the Autumn Budget, threatened their entitlement to ER.  

The new rules increased the minimum shareholding period, to qualify for ER on the sale of a company, to two years for sales on or after 6 April 2019.

In addition, with immediate effect, vendors must be entitled to at least 5% of the profits available for distribution and at least 5% of the net assets of the company, in addition to the existing requirements on share capital and voting rights.  This announcement caused a significant level of anxiety as it could frequently exclude alphabet shares where the absolute right to dividends or assets did not flow equally to the shareholders of different share classes.

The Finance Act 2019 introduces a further, alternative, test to these two Autumn Budget requirements.  This test is based on the shareholder’s entitlement to at least a 5% share of disposal proceeds, in the event of the company being sold.

This is good news for owners of different share classes, who might otherwise have had to consider changing the terms of their shareholdings and waiting for a further two year holding period to elapse before qualifying for ER.

Please get in touch with your usual Ryecroft Glenton contact on 0191 281 1292 if you would like to discuss any of the above in further detail.