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Photograph: HM Treasury

Each year we submit tax proposals to the Chancellor ahead of the Budget that focus on incentivising growth and investment in small and mid-size quoted companies. We are currently working on some of our proposals now and want to share them with you. 

Our key proposal focuses on reforming capital gains tax (CGT) relief. We suggest the removal of the arbitrary 5% threshold for CGT Entrepreneurs’ Relief for employees/officers, funded by extending the minimum holding period for the relief from one year to three years. This will encourage the alignment of employee and management goals in driving growth. We also suggest expanding this relief to long-term investors in small and mid-size quoted companies to recognise all stakeholders who make a meaningful and important contribution to growing businesses.

We are keen to hear from companies or advisors about difficulties you have had with the 5% limit on Entrepreneurs' Relief – for example,  having to restructure transactions to ensure that directors do not lose their 5% share capital, accidentally breaking the personal company test because of complexity of the rules, etc. Please email Kate Jalbert, Head of Policy & Communications, with any examples (all examples will be treated on a no-names basis).

Below is a table that summarises all our proposals. Let us know what you think about them by emailing Kate Jalbert.

Encouraging long-term investment and funding for growth



Capital Gains Tax (CGT) Reform of Entrepreneurs’ Relief

Short-term proposals:

Abolish the condition that someone must have 5% of the voting rights and 5% of ordinary share capital in the company in order to qualify for the relief (‘5% Requirement’).

Have the relief applied from the date shares are acquired, or the date the option is granted (rather than exercised) for HMRC “approved” schemes, including Enterprise Management Incentive Schemes.

To fund the above relaxations and to promote long-term investment, extend the current holding period from one year to three years.

Long-term proposals:

Rebrand Entrepreneurs’ Relief as ‘Stakeholders’ Relief’ to identify those parties that make a meaningful contribution to the success of a business and more clearly align employee and shareholder interests to promote long-term growth and employment.

In addition to employees and officers, target this relief for long-term investors:

  • Remove the 5% Requirement and the condition that only officers and employees can qualify for CGT Entrepreneurs’ Relief.
  • Introduce a five year holding period for shares for persons other than employees/officers to attract and reward long-term investment.
  • Consider targeting this relief to the SME sector.

Dividend Tax Credit for Pension Funds


Reinstate the Dividend Tax Credit for pension funds, targeting this relief to investment in the SME sector.

To encourage long-term investment, only apply the credit if shares have been held for at least three years


Allow investments quoted on exchange regulated markets (e.g. AIM and PLUS) to qualify for inclusion in ISAs.

Simplifying tax rules to encourage economic growth




Worldwide Debt Cap

Eliminate the exclusion of debtor balances of less than £3m so that, effectively, the gateway test is on a total UK net debt basis. If necessary, this exclusion could be restricted to groups that meet certain size criteria.

In certain circumstances, allow groups below a certain size threshold to calculate net debt on the basis of UK consolidated group accounting figures.

Make the gateway test optional, which would permit groups, if they so wish, to go straight to the detailed calculations.

Transfer Pricing

Confirm that medium-sized groups are not required to compile contemporaneous evidence to support pricing policies, unless they wish to.

Confirm that HMRC will not seek to discount the value of evidence compiled at a later date following the commencement of HMRC enquiries.

Senior Accounting Officer Requirements

Amend the tests of whether companies need to file for  a senior accounting officer certification, so that they are by reference to group consolidated figures, which better reflect a commercial groups overall position.

Size Tests

Align size definitions for tax purposes as far as possible.

Increasing investment and liquidity


Stamp Duty

Eliminate Stamp Duty on shares quoted on exchange regulated markets (e.g. AIM and PLUS-quoted) and announce the intention to eliminate Stamp Duty for all shares over a three year period.

Creating a level playing field for debt and equity

Cost of raising equity

Costs to be deductible up to a limit of £500,000 or extended to “small or medium-sized” companies.


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