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Entrepreneurs Relief Sale of Company Assets

Availablilty of Entrepreneurs Relief on Associated Assets in a company asset sale

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For the last 10 years, Mr A has been the 100% shareholder and sole director of B Ltd whose sole activity is manufacturing kitchen equipment for sale. The business operates from a freehold building owned personally by Mr A. The ltd co does not pay any rent for the use of the building. Mr A has now received an offer for the assets of the company (not the shares) and for the building. The company will pay CT on the gains within the company. Mr A does not wish to withdraw the remaining cash in the company but rather to use it to fund the company's new business of overhauling boats. However, Mr A wishes to claim Entrepreneurs Relief on the capital gain made on the building. I do not think he can as there is no Material Disposal, but he feels that as he has effectively ceased trading and sold his business he is entitled to claim. Views please.

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By Jdopus
24th Sep 2019 09:12

Is there any particular reason that he wants to keep the same company while starting a new trade?

He's clearly disposing of a business owned by his company and starting a new business, albeit within the same Ltd company. It seems to me that it would qualify for Entrepeneurs Relief if he was lifting the cash out of the limited company and starting a new company to carry on his boat trade but it seems that it might be blocked if he decided for some reason not to dispose of his shareholding in the current company.

I think I would advise him to start a new company for the new trade unless there's some overwhelmingly good reason not to, has he given any reason why he wants to start a new trade in the old limited company?

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Replying to Jdopus:
By johngroganjga
24th Sep 2019 09:57

Jdopus wrote:

... has he given any reason why he wants to start a new trade in the old limited company?

One obvious reason is that he would rather not pay the tax it would cost him to extract the cash from the old company before introducing it to the new one. Whether the tax saving on the property of being able to claim entrepreneur’s relief on it is worth the extra tax on liquidating the company is something only the OP can tell us, because we don’t have the numbers.

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Replying to johngroganjga:
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By The Dullard
24th Sep 2019 10:41

Misread the OP.

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By The Dullard
24th Sep 2019 10:42

Misread the OP.

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By Adam12345
24th Sep 2019 11:00

No ER on the disposal as there needs to be a material disposal of business assets (i.e. 5% shareholding) for the disposal to be an 'associated disposal'.

This is where a bit of forward planning could've been useful (hive downs etc).

Might be best to wind-up the company via MVL and claim ER on the disposal then start a new company with a directors loan.

I would be pushing for a share sale to avoid a double charge to tax (could include indemnities/warranties if the purchaser is worried about future liabilities).

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Replying to Adam12345:
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By Trethi Teg
26th Sep 2019 10:51

The shareholder does not want to withdraw the cash from the company as he does not want to pay the CGT at this point. A case of cake and eat it (where have I heard that recently).

If he were to dispose of - say - 10% of his shares by gifting them to his son, would he then be able to qualify for ER on the associated disposal?

Would the gift of the shares (if the gift were after the sale of the assets) as the company will by then be non trading, qualify for hold over relief in the hands of the son?

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By Tax Dragon
24th Sep 2019 11:06

What if there was a share buy-back? Wouldn't get capital treatment, but so what?

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