Entrepreneurs Relief for Dormant Company

Entrepreneurs Relief for Dormant Company

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I believe that the owner of of a company that has been dormant for 10 years but which has several investment properties cannot claim Entrepreneurs Relief. If he injects some/any form of trading ( however small) into the company and trades for 3 years can he then claim E Relief?

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By Paul Soper
12th Dec 2011 23:12

Trading?

The definition of trading for ER is the same as for taper relief, so if there are non-trade activities exceeding 20% they will prevent ER being available.  So the answer is NO.

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By Steve Kesby
13th Dec 2011 10:44

Slightly alternative view

Bernard, I'm not sure of the significance of the 3-year period that you're referring to.  For a disposal of the shares to qualify for ER the following conditions need to be met for a continuous 1 year period ending on disposal or cessation of the trade (not more than 3 years ago).

The conditions are:

officer or employee of the company; andholding > 5%; andtrading company (or holding company of a trading group).

Trading company is defined as a company carrying on trading activities (which includes preparing to carry on a trade) "whose activities do not include to a substantial extent activities other than trading activities".

As Paul has identified, HMRC have issued an interpretation that identifies 20% to be substantial.  They say that the 20% may be of assets, income, or management time/effort.

Since one is measuring "activities" to see if they're substantial, the only appropriate measure is management time/effort, as that is the only way of measuring the extent of the "activity".

I'm less convinced that the answer's a resounding no, but I don't think your "however small" is correct either.

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