Husband and wife own a trading company 50:50. Company operates a garage, has a fair amount of cash in bank, and a couple of investment properties. The land and buildings the company trade through are owned 100% by husband – no rent paid for their use.
A buyer has offered to buy the land from the husband (over £1m). On it’s own, this won’t qualify for entrepreneurs relief.
My first thought is for husband to transfer at least 5% of his shares to his wife, and so trigger a material disposal of his shareholding, so that we can then look a arguing the sale of the land is an associated disposal. Whilst I’ve seen some commentary online suggesting this would work, the fact that it’s going to his spouse makes me slightly uneasy about it.
My second proposal would be to liquidate the company. At present, the company would be a trading company for ER purposes (despite the investment properties and cash balance), and so this would be just about the last time to secure ER on the company’s assets.
My issue is, the winding up process of the company may take some time, and will certainly happen after the disposal of the land.
Will he still be entitled to ER on the sale of the land? Will the timing of the two events, i.e. the associated disposal taking place before the material disposal, affect this?
The legislation (TCGA 1992 s169K) doesn’t seem to stipulate an order in which the disposals take place, merely “that the associated disposal is made as part of the process of withdrawal of the individual from participation in the business of the trading company.”
I don’t think there’s much doubt that the sale of the trading premises, and subsequent liquidation of the trading company, are part of the “withdrawal of the individual from participation in the business of the trading company”, so I feel there is an argument to be had here.
Having only ever applied the associated disposal rules to instances where the associated disposal took place after the material disposal, I’d be interested in others opinions on this.