Entrepreneurs Relief

Posted by calvinplummer PM | on Fri, 03/02/2012 - 11:13 467 3 comments | report

Hello

If company A owns a property from which company B operates, in order for the shares in company A to qualify for entrepreneurs relief should no rent be charged to B for use of the premises?

I understand that this is one of the criteria that needs to be met for entrepreneurs relief if an indvidual rents a property to his/her personal company but I am unclear on the rules if it is held by a connected company

Thanks in advance

Comments

Confused principles

Steve Kesby | Fri, 03/02/2012 - 13:13 | Permalink

If individual X owns a property that he rents to his personal company Y Ltd, then the ER on the shares is unaffected. If the company ceased trading and he sold the property around the same time, ER would be restricted in respect of any gain on the property, because of the payment of rent.

In your situation, ER on company B's shares is unaffected by the rental arrangement. It is probable that company A's shares don't qualify for ER, unless it has other trading activities, that render the rental activity insubstantial.

Entrepreneurs' Relief

trust.pem | Fri, 03/02/2012 - 13:23 | Permalink

Assuming that the main business of Company A is letting a property to a connected party, Company A does not meet the definition of a ‘trading’ company (you may need to also be aware of the Close Investment Holding Company rules for Corporation Tax purposes). A disposal of the shares in Company A would therefore not be eligible for Entrepreneurs’ Relief.

Holding land as an investment to earn future rent is specifically excluded from being a trading activity.

If, however, Company A is carrying on trading activities and the rental element is not substantial to the overall trading activities, then the rent being charged should not affect the availability of Entrepreneurs’ Relief on a disposal of the shares in Company A.

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blok | Sat, 04/02/2012 - 13:31 | Permalink

If company a doesn't trade there will be no er.
Company b shares are held by company a and er is not available to companies.
You might need to reorganise things if the trading company is being sold in the future.