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Entrepreneurs relief query on share & property sale

Entrepreneurs relief query on share & property...

A person is looking to retire and runs a shop via own Ltd Co.(100% owned and run for many years)

She also personally owns the business premises where the shop is run and over the years the company has paid her a rent.

She is now looking at selling the business and the premises as the buyer wants both.

Q-Can anyone confirm that on above basis ER applies so that gains on both only taxed at 10%

Also if she doesn't sell the premises and instead lets them to the new owner then assume ER would be denied but at what point would any subsequent sale be charge at normal CGT rates?

Thank you for any help


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14th May 2012 19:33


No, entrepreneurs' relief on the premises will be restricted because a rent has been charged.  You will have to do a calculation based on the actual rent paid, the market rent and the period fro which rent was charged.  (Rent prior to 05/04/08 is ignored)

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15th May 2012 10:23

Slightly misleading

I'm finding Cloudcounter's comment slightly misleading (although I'm sure not purposefully so).

To clarify, in calculating the restriction in respect of the payment of rent, only the period after 5 April 2008 is considered (by virtue of the transitional provision in para 6 of Sch 3 FA 2008).

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15th May 2012 18:01


With apologies to Steve, I think Cloudcounter gives the clearer view.

The restriction only has regard to rent paid after 6/4/08. The period prior to 6/4/08 is still considered but any rent paid in that period is ignored. See Example 2 in CG64145 


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15th May 2012 19:25

Depends on how much

The restriction to entrepreneurs' relief operates where rent is paid for occupation but the relief can still be given if the rent is less than the full market rent.

According to the revenue it is necessary to time apportion the gain, that part which relates to the period before April 2008 qualifies for unrestricted ER as it would have qualified for unrestricted taper relief.  That part of the gain that relates to the period after April 2008 can still qualify if the rent paid is less than market rental.  It will be necessary to get a valuer to indicate what a full rent would be.  If the rent charged was 60% of that figure then the reciprocal, 40% of the gain, will qualify for ER.

This is a return to the retirement relief rule that applied before 1998 and there is a further twist. At that time where rent was paid sufficient to cover interest and property charges but did not leave a profit HMRC were prepared, it seems, to ignore the effect that payment of rent has.  It could be worth submitting a claim to full ER if this could be argued with a full explanation in the white pages to limit discovery assessments.

As a last point the HMRC treatment outlined in para 2, time apportionment, is not necessarily supported by a close reading of the transitional provision inserted at the last moment into FA2008.  If a dispute went to Tribunal it is possible that the Tribunal could find that the whole of the gain, not just that part after April 2008, is restricted by reference to the rent that was charged and the rent that could have been charged - the client should be warned accordingly.

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16th May 2012 10:22


As the purpose of the amendment was to prevent prejudice (i.e. more tax) to those who had unwittingly charged rent prior to 6/4/08, it should be possible to plead Hansard (although I have not checked what specifically was said at the time) and that the legislation is ambiguous to provide the result as set out in HMRC's manual.

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16th May 2012 10:33

Thanks Graham and Paul...

... and apologies to Cloudcounter!

When I originally read Cloudcounter's comments it didn't ring completely true (in my mind) with my understanding (per Paul's explanation in his 2nd paragraph), but I think we do all mean essentially the same thing.

Paul's final two paragraphs make very interesting reading though.

EDIT: As is Graham's response!

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16th May 2012 13:08


Certainly an argument could be put forward on that basis but unfortunately Hansard, government or Bill sponsors' intention under Pepper v Hart can only be taken into account if the wording is ambiguous, unfortunately I'm not sure that the wording is ambiguous although it seems to not to achieve parliaments' intentions.  Until we have a legal case to clarify it I'd still warn the client of a possible, though one hopes, remote danger.  Look at what happened over Mansworth v Jelly for an example of the courts going in their own direction.

As a further comment, where the asset has been used for business purposes and then is subsequently let to someone else the act is very clear that you apply time apportionment and give ER on the business gain.  There are 4 situations in the act where ER is restricted, part-disposal, asset not being used for business throughout the period of ownership, the business not be carried on throughout the period of ownership, those three are time apportioned, and the fourth is where rent is paid where the act instructs that the apportionment is NOT by reference to time but the inverse proportion of the rent paid to the full market rent.

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