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Is previous Entrepreneurs Relief limit used?

Share sale from 2019

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Following the reduction in the ER lifetime limit on 11th March 2020, am I right in assuming that a share sale from 2019 which includes the payment of loan notes post 11/03/20 will mean that the receipt of the loan notes after March 20 will still be able to use the higher ER lifetime limit/

To confirm, I am only considering the lifetime limit as I am happy that the loan notes qualify for ER. 

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By Tax Dragon
03rd Aug 2020 08:51

It's a very strange thing to assume, IMHO. Would there not have to be legislation that made it so? (There may well be such legislation. But if you can't be bothered to look and instead rely on assumption, why should I look for you?)

Sorry for the grumpy attitude. But I really don't like these "assume" questions. Especially on a Monday morning.

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Psycho
By Wilson Philips
03rd Aug 2020 11:42

I think you need to clarify what type of loan note and what you mean by “payment of loan notes”

Have you thought about any relevant elections?

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By SA2016
03rd Aug 2020 13:40

Sorry, my question was badly written.

A s169R election would need to take place to ensure the whole proceeds (including loan note) are taxed on full on the disposal of the shares. However, this hasn't taken place and it is now too late

The situation is such that the shares were sold for £2m in cash with a further £2m paid in monthly instalments (loan notes with interest at 3%), however some of these payments will be paid after March 2020.

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Replying to SA2016:
Psycho
By Wilson Philips
03rd Aug 2020 14:19

You still haven't confirmed what kind of loan note (although the reference to s169R is a strong hint :¬))

But you said that the disposal was in 2019, so why are you out of time to make the election?

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By Tax Dragon
03rd Aug 2020 15:00

I've perked up a bit. Wrong side of bed this morning (and this is the week of the month when I am most likely to get myself banned from this forum!)

TCGA S116(10)(b) says that the deferred gain is deemed to accrue on disposal of the QCBs. (That's subject to other rules - read the legislation.)

So the default position (i.e. subject to other rules) seems to be the opposite of your "assumption". Given that you can elect out of the problem, I doubt the BADR legislation provides another "subject to".

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By SA2016
03rd Aug 2020 17:50

Having read it in more detail now (sorry :( ), I think the situation is as follows:

S169R election can take place by 31st Jan 2021 as the original disposal was in YE 05.04.19, this will require an amendment the 2019 return but will allow the NQCB's to be subject to tax all at 10%. I assume this will also trigger some late payment penalties though for the additional tax?

If the above did not take place, the additional loan notes would now be subject to 20% as the ER lifetime limit (based on lower limit) has now been fully utilised.

My initial thought regarding the election is that because the election took place after March 2020 (although it relates to a pre March 20 transaction) that this would not affect the lifetime limit?

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Replying to SA2016:
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By Tax Dragon
03rd Aug 2020 18:12

NQCBs? Might I point you away from s169R and towards s138A/s169Q [I think you may have the choice]?

Why would there be penalties? The tax is not due until the election is made, so won't have been paid late if it's paid within... well, 30 days is normal (I'm not checking for you). Interest? Maybe, that's supposedly not 'penal'. (Again, I'm not checking.)

Initial thoughts, assumptions... nah, best shut up, I'll get myself a ban. The relevant limit is tied to the date of the disposal. The date you make an (in time) election is irrelevant.

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Replying to Tax Dragon:
Psycho
By Wilson Philips
03rd Aug 2020 18:18

Not quite accurate. The due date for the tax would have been 31.01.20. Time limit for election is 31.01.21. Other than that, spot on. It would be odd indeed if one were to be penalised for making a statutory election by the statutory deadline. Interest, yes, but I do not consider that to be penal. And, yes, the OP 's 'hint' of his reference to s169R threw me off in the wrong direction (not that the effect is material to the question or the answer).

To the OP - it is a claim, not an amendment to a return. (Again, the effect is pretty much the same, though.)

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Replying to Wilson Philips:
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By Tax Dragon
03rd Aug 2020 18:31

So... the due date for payment is 31.1.20 and that's relevant to interest but not penalties. Thank you for correcting my wording.

The claim being made in the return (because it's in time to amend) but by changing the return not amending it... if that's the accurate wording [is it?!], I do get why people don't like looking at tax law. It's not Clapham English. (Why is a change not an amendment?)

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Replying to Tax Dragon:
Psycho
By Wilson Philips
03rd Aug 2020 19:13

My point was that although you may be able to amend the return to give effect to the claim there is not, as far as I am aware (can’t be bothered to check) a requirement to include such a claim in a return.

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Replying to Wilson Philips:
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By Tax Dragon
04th Aug 2020 07:35

I think there is such a requirement, hence I missed your point.

I had a little pop at the OP yesterday for not making the effort to look at the legislation. I do get that, if you are a sole trade general practitioner accountant, (reading) tax law presents a problem. Especially since the Gov.uk version can be years out of date. [Incidentally, I think that's nowhere more true than with TMA, which last time I looked was at least a decade behind. And it's probably got worse rather than better since! TMA (s42 I think, though it might've been dumped in a schedule) is where the requirement referred to would exist - if I'm right that it does (pretty sure I am).]

And you always have to know your own limitations - which with a sole trader trying to keep up with changes on all fronts (not just tax) is obviously hard.

So... OP, I'm sorry for my pop, I understand the difficulties and I appreciate your effort in finding s169R. I hope looking helped; even though what you found was the wrong thing, you hopefully gained a better idea of how the CGT jigsaw fits together. (I for one am much happier helping people in here fill in a few blanks in the jigsaw, than dealing with those who haven't even picked out the corner pieces.)

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Replying to Tax Dragon:
Psycho
By Wilson Philips
04th Aug 2020 09:15

You are correct - it is 42, Answer to the Ultimate Question of Life, the Universe, and Everything (including how to make a tax claim).

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