CG64021 - Entrepreneurs’ Relief - “disposal of part of a business”: meaning – case law continued
Wase v Bourke (68TC109)
Mr Bourke ran a small dairy farm in partnership with his wife.
Under the partnership agreement all capital profits and losses
(except those on disposals of farm land) were allocated exclusively
to him.
He decided to give up dairying and sold the dairy herd in
March 1988. After the sale of the herd the farm was run
predominantly as an arable farm. The land previously used for the
herd was made the subject of an environmentally sensitive area
management agreement, which placed restrictions on the use of the
land.
After the sale of the herd the milk quota was leased to a
third party until February 1989, at which time it was sold `in
further implementation of his decision to give up dairy farming.'
The High Court held that retirement relief was not due. The
relevant business activity consisted of the production and sale of
milk. That activity ceased on the disposal by the taxpayer of the
herd in March 1988. The subsequent disposal of the milk quota did
not amount to a disposal of part of the business, nor was it part
of the disposal of dairying which had taken place in March 1988.
In Mr Rawlings' case, outlined above, it was right to
consider the effect of simultaneous disposals together in deciding
whether there was a disposal of his business. But Mr Bourke decided
to dispose of his milk quota nearly a year after he had sold his
herd and given up dairy farming. These two matters could not
properly be described as amounting to a single transaction, even
though they were steps taken in implementing the decision to get
out of dairy farming. In the words of Peter Gibson J (in the Dancer
and Johnston cases, see CG64020), there was here `separate
disposals not part of the same transaction'.
Barrett v Powell (70TC432)
Mr Powell had, for many years, farmed 326 acres of land. He
owned 100 acres, held 90 acres under licence and held an
agricultural tenancy over the remaining 136 acres.
He was served with a notice to quit the 136 acres of
tenanted land. Following negotiations with his landlord, he
received £120,000 on executing a deed surrendering his
tenancy. However, he was allowed to continue farming the land for a
further 18 months under a temporary licence granted by his
landlord. The level of his farming operations therefore remained
unaffected until that 18 month period expired (when he then gave up
both the 136 acres and the 90 acres held under the separate
licence). Mr Powell continued to farm the remaining 100 acres of
owned land for a further 12 months and, having disposed of stored
harvest in the following 6 months, ceased business altogether.
The High Court held that retirement relief was not due on
the gain on the surrender of Mr Powell's tenancy. Although he had
been forced to give this up, the disposal was merely of an asset
used in his business and not of part of that business. It was not
sufficient to say that the substitution of a temporary licence for
the agricultural tenancy rendered the future of the business
uncertain or more precarious. The important point was that there
was no change in the character of the business or termination of
any part of the business occasioned by the disposal of the tenancy.
On the facts, the business of farming continued very much as
before and there could be no justification for linking the
surrender of the tenancy with the eventual cessation of farming
some three years later.
The case emphasises that, where an asset is disposed of
prior to cessation of a business, relief will be due only if that
disposal directly and immediately causes the whole or part of that
business to cease.
Purves v Harrison (73TC390)
Mr Harrison traded as coach and minibus operator. He had been
looking to sell the business and its assets as he wished to retire.
He advertised the business for sale from 1989. In March 1990 Mr
Harrison disposed of the business premises. Under the terms of
sale, the purchaser granted Mr Harrison an informal licence
allowing continued occupation of the premises for the purposes of
his business and, on expiry of that licence, an option to acquire a
three year assignable lease of the premises.
Mr Harrison was still attempting to sell the business. He
slimmed down his fleet of vehicles in mid/late1990 in the hope that
a reduced purchase price might attract buyers. The business was
sold in December 1990
Mr Harrison appealed against a capital gains tax assessment
for 1989/90 on the gain arising from the disposal of the premises.
The General Commissioners held that the two sales were capable of
together constituting a disposal of the whole of the business and
there was a connection between the sales. Consequently retirement
relief was due on the disposal of the premises.
In the High Court Blackburne J. considered whether a
continuing intention to dispose of the premises along with the
remainder of the assets of the business was on its own sufficient
to create a connection between the two disposals to different
persons separated in time by many months. He concluded that it was
not and allowed the Revenue's appeal.
This case again demonstrates that in certain circumstances
relief may not be available where, although a business is entirely
disposed of, this happens by way of more than one transaction.
