Entrepreneurs Relief

Entrepreneurs Relief

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Considering incorporation now - currently a sole trader but owned 75% of the business for 10 years and acquired the remaining 25% in March 2012.  Would Entrepreneurs Relief apply to the 25% or would they have to wait until 12 months from April 2012 in respect of that 25% proportion of the business? 

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By Sarah northwest
25th Oct 2012 13:10

My understanding is that only the 75% would qualify for ER. You have to have to meet the qualifying conditions for the previous 12 months upto the date of disposal. So the 25% will never meet the conditions as they will never be owned and used for 12 months as the new company will now trade from today onwards. You may wish to consider incorporation relief, which defers your gain until the time when you sell your shares. You should seek advice as it may be tax effective to pay the 10% now on the 75% and 18/28% on the 25% rather than pay when you sell the shares in the future. If you are planning to run the company for over 3 years and have over 5% of the share capital then you may be able to claim ER then.

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By George Attazder
25th Oct 2012 13:20

Rewind

The only reason I know of to crystallise a gain and claim ER is where there is goodwill and the business commenced after 31 March 2002.  Depending on the precision of your 10 years figure, the first question seems to be when did the business commence.

Otherwise I agree with the previous response that what's being disposed of needs to have been owned for at least 1 year to qualify in these circumstances.

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By cathygrimmer
25th Oct 2012 14:21

Full ER

This isn't a question I've ever been asked - but it's an interesting one! I have to disagree with the previous answers though. If the individual has owned a share in the business for more than one year, he is treated as having owned 'the business' for more than one year in accordance with TCGA 1992 s169I(8) which says:

'at any time when a business is carried on by a partnership, the business is to be treated as owned by each individual who is at that time a member of the partnership'.

 

So in my opinion, the acquisition of the additional 25% is essentially treated as enhancement expenditure with the whole disposal qualifying for full ER as the original acquisition date of 'the business' is more than one year before disposal.

Cathy

[email protected]

 

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By George Attazder
25th Oct 2012 14:59

I have to say...

... I now agree with Cathy!

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By cathygrimmer
25th Oct 2012 15:12

@ George

Oh , George, you are so easily swayed!!

Cathy

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By George Attazder
25th Oct 2012 15:14

Cathy

Buy me a shandy and I'm anybody's!

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By topkaz
25th Oct 2012 15:22

Thank for the responses I must admit that I had thought full ER on the same basis as Cathy but then doubted my own thought process! 

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