CG63980 - Entrepreneurs’ Relief: qualifying disposals by individuals: examples
Example 1
S sells her trading business, which she has owned for the last 8 years, in February 2009 and realises gains and losses as follows:-
| Gain of £250,000 | on her factory premises |
| Gain of £300,000 | on goodwill |
| Loss of £100,000 | on her retail shop |
Each of these gains and losses arising from the disposal of the business will constitute a ‘material disposal of business assets’ by S as an individual. Together they give net gains (see CG 64125) of £450,000, which will qualify for Entrepreneurs’ Relief.
Example 2
In 1995 E purchased a buy-to-let property for £100,000 that
is let out on an assured short- hold tenancy basis. He sells this
property in October 2008 for £250,000. The gain is
£150,000.
This gain is not eligible for Entrepreneurs’ Relief as
it does not constitute a material disposal of business assets. For
Entrepreneurs’ Relief purposes a ‘business’ has
to be a ‘trade, profession or vocation’. The
straightforward letting of property is not a trade.
Example 3
R has been an equal member of a 4 person trading partnership for
several years. He retires completely from the partnership and
disposes of his interest in partnership assets to the other
partners, realising gains of £125,000. All of these gains will
qualify for Entrepreneurs’ Relief as they will constitute a
material disposal of the whole of R’s interest in the
partnership.
Alternatively R may decide to work part time and agrees to
reduce his partnership share to 10% from the original 25%. He sells
the balance of his interests in the partnership assets to the other
partners and realises chargeable gains of £75,000. R may claim
Entrepreneurs’ Relief because the 15% share of the
partnership interests he disposed of will constitute a material
disposal of part of his interest in the business of the
partnership.
Example 4
F has carried on a retail business for 5 years. In July 2010 he takes on W as a partner. W pays £300,000 to F to enter into the partnership agreement which shares the interest in all of the business assets equally between them. The £300,000 received by F is a capital receipt in his hands which may give rise to a gain, as he disposes of a 50% interest in each of the business assets. Those gains may qualify for Entrepreneurs’ Relief because F’s disposal is a material disposal of part of his business to W, his new business partner.
Example 5
T sells his shares in his company in September 2010 and realises a gain of £360,000. The company was a trading company but ceased to trade in August 2009. Since February 1995 he had owned 50% of the ordinary shares of the company, which entitled him to 50% of the voting rights. Since 1997 he has been a director of the company. T’s gain will qualify for Entrepreneurs’ Relief because even though T’s company had not traded throughout the 12 months prior to the disposal of the shares it had been a trading company within the period of three years prior to the disposal and he had held the requisite shares and voting rights, and been an officer of the company throughout the 12 months prior to the trade ceasing.
Example 6
N sells her business in 2009 and realises a gain of
£99,000. This qualifies for Entrepreneurs’ Relief
because it will constitute a ‘material disposal of business
assets’. N claims the relief, but also makes an investment of
£80,000 in qualifying Enterprise Investment Shares (EIS) and
claims to defer the gain.
N’s gain of £99,000 is reduced by 4/9ths,
resulting in a chargeable gain of £55,000 – see CG64125.
The investment in EIS shares exceeds £55,000, so the whole of
the chargeable gain of £55,000 is deferred. This amount will
come into charge at some later time under the normal EIS rules for
charging deferred gains – see CG62800.
