CG64125 - Entrepreneurs’ Relief: calculation of the relief - general
TCGA92/S169N
Where a claim for Entrepreneurs’ Relief has been made, the
aggregate figure of “relevant losses” in respect of the
qualifying business disposal is deducted from the aggregate figure
of “relevant gains” in respect of that disposal –
TCGA92S169N(1).
The aggregate “relevant losses” and aggregate
“relevant gains” in respect of the qualifying business
disposal are explained below.
If the aggregate losses exceed the aggregate gains,
Entrepreneurs’ Relief cannot be claimed (TCGA92/S169M (4) -
see CG63970).
If however, upon a claim being made for Entrepreneurs’
Relief, the aggregate gains exceed the aggregate losses the
resulting net gain is reduced by 4/9ths. The reduced figure is then
the “chargeable gain” which is potentially chargeable
at the single (18% for 2008-9) rate of CGT – TCGA92/S169N
(4).
Other allowable losses can be deducted from this
TCGA92/S169N (4) chargeable gain, and the Annual Exempt Amount can
be set against it.
“Earlier relevant qualifying business disposals”
Over-riding Limit
The maximum gains which may benefit from Entrepreneurs’
Relief is subject to a lifetime limit for all qualifying disposals
of £1 million of net gains (the aggregate “relevant
gains” and aggregate “relevant losses”. in
respect of qualifying business disposals) to which the 4/9ths
reduction can be applied.
That amount of net gains plus the total amounts of net gains
to which the Entrepreneurs’ Relief 4/9th reduction has been
applied in relation to any “earlier relevant qualifying
business disposals” may not exceed £1 million –
TCGA92/S169N(3).
A person may be entitled to Entrepreneurs’ Relief on
more than one occasion. For example an individual may dispose of a
second business, or his or her shares in several instalments, or
they may sell part of their business at one time and then sell the
rest of it later. Each disposal may meet the qualifying conditions
for relief but as only a lifetime limit of £1,000,000 gains is
available for relief it is necessary to take into account earlier
qualifying gains which have been the subject of a reduction.
Chargeable Gain
The net figure after Entrepreneurs’ Relief (that is, the aggregate “relevant gains” and aggregate “relevant losses” in respect of the qualifying business disposal in question, less the 4/9ths reduction) is treated as a chargeable gain arising to the claimant at the time of the qualifying business disposal, and the various gains and losses aggregated are then not brought into account separately for CGT purposes – TCGA92/S169N(4) & (9).
“Relevant gains”
These are gains on the disposals that comprise the qualifying business disposal, but do not include gains on disposals of assets that are not “relevant business assets” (see below). The “relevant gains” are computed in accordance with the normal rules for chargeable gains and determined by TCGA – TCGA92/S169N(5).
“Relevant losses”
These are similar to “relevant gains”, being losses
on the disposals that comprise the qualifying business disposal,
but do not include losses on disposals of assets that are not
“relevant business assets” (see below). Again these
losses are computed in accordance with the normal rules for
allowable losses – TCGA92/S169N(6). In making a claim for
Entrepreneurs’ Relief, which may include “relevant
losses” on qualifying business disposals it is assumed that
the necessary notice under TCGA92/S16(2A) has been given to make
those losses ‘allowable losses’.
The aggregate “relevant gains” and aggregate
“relevant losses” are simply the sums of the various
gains and losses in respect of a qualifying business disposal.
Relevant business assets
‘Relevant business asset’ is defined at TCGA92/S169L as an asset, or an interest in an asset, used for the purposes of a business but excludes shares and securities and assets which are held as investments – see CG64005.
“Earlier relevant qualifying business disposals”
“Earlier relevant qualifying business disposals” as referred to above – TCGA92/S169N(3) are:
- where the qualifying business disposal to which the current claim relates is made by an individual, earlier qualifying disposals made by that individual (see CG63975) or earlier disposals of trust business assets where that individual was the qualifying beneficiary (see CG63985).
- where the qualifying business disposal to which the current claim relates is a disposal of trust business assets, earlier qualifying business disposals made by the relevant qualifying beneficiary (see CG63985) and earlier disposals of trust business assets by trustees which qualified for relief by reference to that individual being the qualifying beneficiary (whether they are the trustees of the same settlement or a different one).
– TCGA92/S169N(3) & (7).
Same day disposals
Where on the same day a disposal is made of:
- trust business assets, and
- by the individual who is the qualifying beneficiary, a disposal of qualifying disposal of business assets
then in applying the lifetime limit of £1 million to the
gains on these transactions, the disposal by the individual who is
the qualifying beneficiary is treated as having taken place before
the disposal of trust business assets – TCGA92/S169N(8).
The effect of this is that if the qualifying
beneficiary’s limit of £1 million (after taking account
of any earlier relevant qualifying business disposals) is not
sufficient for Entrepreneurs’ Relief to be available on the
whole of the gains on the disposals taking place on the same day,
the relief that is available goes first to the qualifying
beneficiary, with only any balance remaining being available to the
trustees.
Example
T is a beneficiary of a settlement and carries on a trade of
farming for a period of 4 years until he disposes of his business
in 2010 (at a gain of £900,000) and claims
Entrepreneurs’ Relief. Part of the land T farms belongs to a
settlement of which he is tenant for life (this being the sole
interest in possession). When T disposes of his farming business,
the trustees also sell the land giving rise to a gain of
£200,000. The beneficiary and trustees jointly claim, see
CG63970, for Entrepreneurs’ Relief in respect of the
trustees’ gain.
Assuming there have been no earlier disposals by either the
qualifying beneficiary or the trustees which qualified for
Entrepreneurs’ Relief the amount of relief available is
–
| Maximum | Gain eligible for | Chargeable | ||
| lifetime | Entrepreneurs’ | gain | ||
| limit | Relief | |||
| Qualifying disposal by | ||||
| beneficiary as individual | £900,000 | £1,000,000 | £900,000 | |
| (This is the relief due | ||||
| on T’s personal gain) | ||||
| 4/9th Reduction | £400,000 | |||
| Chargeable gain on T’s | ||||
| personal gain | £500,000 | |||
| Unused relief | £100,000 | |||
| Qualifying disposal by | ||||
| trustees | £200,000 | £100,000 | £100,000 | |
| (This is the relief due | ||||
| on the trustees’ gain) | ||||
| 4/9th Reduction | £44,445 | £55,555 | ||
| Total chargeable gains | ||||
| therefore | £655,555 |
