CG63975 - Entrepreneurs’ Relief: qualifying disposals by individuals
TCGA92/S169I
Entrepreneurs’ Relief is available where a ‘material disposal’ of business assets is made by an individual. This occurs when an individual makes a disposal of business assets which is a material disposal – TCGA92/S169I(1).
“A disposal of business assets”
Disposal of assets after cessation: 3 year period
“A disposal of business assets”
“A disposal of business assets” – TCGA92/S169I(2) is —
- a disposal of the whole or part of a business (this is more than a disposal of assets used in a business; it requires the disposal to be of all of a business or a clearly identifiable part of it – see CG64015); or
- a disposal of assets, or of interests in such assets, which were used for the purposes of a business that has now ceased, provided they were in use for those purposes at the time of cessation; or
- a disposal of shares in or securities of a company, or of an interest in such shares or securities.
A “material disposal”
Each of the disposals of business assets as above constitutes a ‘material disposal’ when:
- in the case of a disposal of the whole or part of a business, the business is owned by the individual making the disposal throughout one year leading up to the date of the disposal – TCGA92/S169I(3);
- In the case of a disposal of assets, or of interests in such assets, used for the purposes of a business that has now ceased:
- the assets were in use for those purposes at the time of cessation, and
- the business was owned by the individual making the disposal for a period of one year immediately prior to the cessation of the business, and
- the disposal takes place within three years of that cessation – TCGA92/S169I(4).
- In the case of a disposal of shares in or securities of a company, or of an interest in such shares or securities, either of the conditions in TCGA92/S169I(6) & (7) is met – TCGA92/S169I(5). The conditions are:
Condition A, that throughout the period of a year immediately preceding the disposal– TCGA92/S169I(6):
- the company was the individual’s “personal company” – see CG64050, and
- the company was a trading company or the holding company of a trading group – see CG64060, and
- the individual was an officer or employee of the company or of one or more companies that are members of the group – see CG64110.
Condition B, that where the company has, within the three years immediately preceding the disposal ceased to be either a trading company or a member of a trading group, relief is available if Condition A above was satisfied throughout the period of one year immediately preceding that cessation – TCGA92/S169I(7). This does not apply where the company ceases to be a trading company but becomes a member of a trading group, or vice versa.
Condition A can be satisfied if throughout part of the period of one year the company was a trading company and throughout the remainder of the period was the holding company of a trading group.
- Entrepreneurs’ Relief is also available where the individual carries on business as a member of a partnership. TCGA92/S169I(8) provides that—
- where an individual who carries on a business as a sole trader and then takes on a partner or partners in that business, any disposals of his interests in the business assets which he contributes to the partnership can be treated as disposals of a part of the business;
- where an individual, who carries on business as a member of a partnership, disposes of all or part of his interest in the assets of the partnership that disposal can be treated as a disposal of the whole or part of the partnership business; and
- each individual who is a partner in a business at any time is treated as owning the business carried on at that time by the partnership.
A partner may therefore be able to claim Entrepreneurs’ Relief on
- a disposal of the whole of their interest in the partnership - by treating it as a disposal of the whole of a business; or
- a disposal of part of their interest in the partnership - by treating it as the disposal of part of a business; or
- a disposal BY THE PARTNERSHIP of the whole or part of the partnership business - by treating the business as owned by the individual; or
- a disposal of partnership assets within the permitted period, see above, following the cessation of the partnership business - by treating the business as owned by the individual partner.
An individual, who carried on a business on his own account, may also qualify for Entrepreneurs’ Relief, when his or her business becomes a partnership.
Disposal of assets after cessation: 3 year period
The 3 year period mentioned in the second bullet above is a
statutory limit. HMRC have no discretion to extend the period.
The date of the cessation of a business is a question of
fact. Determining the date will usually be straightforward but for
less clear cut cases when there is a wide difference between
possible dates and this is material to a claim for
Entrepreneurs’ Relief there is guidance in the Business
Income Manual to assist you. See BIM70565+.
