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Putting entrepreneur's relief at risk

Retired farmer determined to continue breeding sheep on 45 acres.

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My husband retired from farming this year, selling the bulk of our farmland and all the buildings plus our herd of suckler cattle. He has retained 45 acres (one arable field, three grass fields) and is renting a further 10 acres (grass) from a neighbour. He is renting our arable field out to a contrator and intends to keep 50 breeding ewes (which could increase to up 150 sheep when lambs are included at lambing time) on the grass fields. He has bought a new tractor and livestock trailer and will ocasionally employ the services of a student to help with fencing. He is not claiming single farm payment, he will not be registered for VAT and will not trade as a business. He is unlikely to make any money on this enterprise (at best £5,000 a year) and claims this is his (very expensive) hobby. Is he putting his claim for entrepreneurs relief on the sale of the farm at risk by having all these sheep and 'farming the land' himself and would it be safer to simply rent the land out to someone else?

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Replying to Accountant A:
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By Tax Dragon
29th Dec 2018 18:30

I love a good citation, me. As you know.

If only leg.gov was kept anything like up to date!

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Replying to Tax Dragon:
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By Accountant A
29th Dec 2018 21:04

Tax Dragon wrote:

I love a good citation, me. As you know.

One does what one can to help.

I couldn't bear the thought of a small amount of the tax being saved with Entrepreneurs' Relief having to be squandered on some rudimentary paid for professional advice.

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By MrsP
30th Dec 2018 00:31

We are paying for advice, but my husband's accountant has refused to give him written confirmation of what he can and cannot do, and other professionals we are dealing with find this alarming. The accountant says we are eligible for entrepreneur's relief but the other professionals say they don't think we are.

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Replying to MrsP:
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By Justin Bryant
31st Dec 2018 11:21

Ignoring the 3 year & 12 month look back rule, a hobby that doesn't make any profit is not a trading activity, so ER will not apply on the land re that per my comments in the link below:
https://www.accountingweb.co.uk/any-answers/is-there-a-minimum-level-of-...

If you Google your question you will see this can be a complex area generally. See:

https://www.accountingweb.co.uk/any-answers/timing-of-cessation-of-busin...

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By fawltybasil2575
31st Dec 2018 14:48

@ MrsP (OP).

Prima facie, the Capital Gains on the sale DO qualify for Entrepreneurs’ Relief (ER)(but this is my preliminary view - see my comments below).

In principle ER is available in respect of the sale of a WHOLE business or PART of a business.

ER is a complex subject and there have been several Tribunal cases which have explored the crucial distinction between (i) the sale of part of a BUSINESS and (ii) the sale only of business ASSETS.

I am seeking to guide you as to how you/your husband should proceed, given that you advise that your accountant is reluctant to commit himself to written guidance to you (in support of his impliedly oral comments to you to the effect that ER IS available).

Of interest to me would be your advising the specific GROUNDS which you state “other professionals” put forward in support of their views that no ER is available.

Without knowing your accountant’s experience/qualifications/expertise, it would be inappropriate to criticise too harshly his current reluctance to provide written advice. HOWEVER, you SHOULD be asking him to point you in the direction of a taxation specialist (or an accountant with sufficient expertise in the field of CGT) who WILL provide you with that written advice (in that respect, he will very probably wish that the engagement is a direct contract between the specialist and your husband, to minimise/eliminate any risk of a Professional Indemnity claim against him for supplying allegedly wrong advice to you).

Accountants are (in most cases) the equivalent of General Medical Practitioners, who would call in a Medical Specialist where necessary. That said, many accountants in general practice achieve a degree of “specialism” in particular areas (especially in fields of taxation), and if therefore your accountant is not comfortable in this area, then he should be able to recommend another advisor.

You should find interesting, as an “easy read”, an introductory book on ER, entitled “Entrepreneurs’ Relief” (by Claritax Books)(with whom I have NO connection): it would give a you a flavour of the difficulties of ER.

Basil.

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By MrsP
31st Dec 2018 16:35

Thank you Justin for taking the time to send me these links, which I have read and will now pass on to my husband to read.

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By fawltybasil2575
31st Dec 2018 17:07

@ MrsP (OP).

Prima facie, the Capital Gains on the sale DO qualify for Entrepreneurs’ Relief (ER)(but this is my preliminary view - see my comments below).

In principle ER is available in respect of the sale of a WHOLE business or PART of a business.

ER is a complex subject and there have been several Tribunal cases which have explored the crucial distinction between (i) the sale of part of a BUSINESS and (ii) the sale only of business ASSETS.

I am seeking to guide you as to how you/your husband should proceed, given that you advise that your accountant is reluctant to commit himself to written guidance to you (in support of his impliedly oral comments to you to the effect that ER IS available).

Of interest to me would be your advising the specific GROUNDS which you state “other professionals” put forward in support of their views that no ER is available.

Without knowing your accountant’s experience/qualifications/expertise, it would be inappropriate to criticise too harshly his current reluctance to provide written advice. HOWEVER, you SHOULD be asking him to point you in the direction of a taxation specialist (or an accountant with sufficient expertise in the field of CGT) who WILL provide you with that written advice (in that respect, he will very probably wish that the engagement is a direct contract between the specialist and your husband, to minimise/eliminate any risk of a Professional Indemnity claim against him for supplying allegedly wrong advice to you).

Accountants are (in most cases) the equivalent of General Medical Practitioners, who would call in a Medical Specialist where necessary. That said, many accountants in general practice achieve a degree of “specialism” in particular areas (especially in fields of taxation), and if therefore your accountant is not comfortable in this area, then he should be able to recommend another advisor.

You should find interesting, as an “easy read”, an introductory book on ER, entitled “Entrepreneurs’ Relief” (by Claritax Books)(with whom I have NO connection): it would give a you a flavour of the difficulties of ER.

Basil.

Thanks (1)
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By MrsP
31st Dec 2018 17:30

Dear FawltyBasil,

Many thanks for your kind and helpful advice, which I will pass on to my husband. I agree that we need to seek advice from a second accountant, one who is more experienced and is willing to give written advice.

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By michaelblake
04th Jan 2019 17:33

Whilst not wishing to detract at all from what others have said the short answer is that if your husband had let out the remaining 45 acres at the same time as the other farmland was sold (for say 12 months and had delayed the start of his new sheep breeding enterprise for 12 months) there would have been no doubt at all that the gain arising on the sale of the other farmland would have qualified for entrepreneurs relief. I am assuming here that (a) the farming trade prior to cessation was carried on commercially and with a view to realisation of profit and (b) the farming trade was carried on for at least 12 months prior to its cessation. Carrying on farming albeit at a reduced scale after the sale of the bulk of the farm land carries the risk that HMRC will want to argue that there has been no cessation of the farming trade (which could lead to relief) and merely a reduction in the scale of the farming trade (which cannot lead to relief). If HMRC were successful in that argument then no relief would be due. At its most basic therefore the continuation of farming, albeit a sheep rather than a suckler enterprise, has put your husband into an area of risk and uncertainty, and potential contention with HMRC that could have been avoided. It may in my view be difficult to argue that the new sheep enterprise is not being carried on commercially and with a view to realisation of profit if a profit is made. There is guidance on how HMRC approach the meaning of "trading commercially and with a view to realisation of profit" at https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim85705
https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim85710
although the guidance relates to loss relief the same tests would be applied to CGT entrepreneurs relief

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Replying to michaelblake:
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By Tax Dragon
04th Jan 2019 18:11

I agree that the OP's husband has wandered from the black and white into the grey, but the question is what has been disposed of, not what has been retained.

It's not beyond doubt (that's a shorter version of my first sentence, I realise!), but on the facts as presented, I would expect ER to be available.

OP('s husband): Claim it and see what happens. It's too late to change what has been done, and nothing that's done now will change whether the relief is due. Move on. Enjoy your profit-making expensive hobby. Keep using your accountant to help you determine and declare the profits.

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By michaelblake
05th Jan 2019 18:35

Agreed although two things that could be done to reinforce any claim is to ensure that the new enterprise is neither commercial (judged against the criteria adopted by HMRC in their guidance) nor makes a profit (as measured using normal tax and accounting rules and taking into account all trading income and expenses)

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By MrsP
05th Jan 2019 21:11

Dear Mr Blake and Tax Dragon,

Thank you for your helpful comments. I do wish my husband would just let the land for a while before choosing to do something with it himself at a later stage, then I could sleep easier at night. He has now contacted the NFU (National Farmers Union) who, he says, have told him he is doing nothing wrong and he could even claim single payment and register for VAT!

Is there a time limit on how long HMRC can take to challenge an application for ER? And under what circumstances might they decide to make a claim?

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Replying to MrsP:
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By Tax Dragon
06th Jan 2019 09:28

Although michaelblake says he agrees with me, his subsequent remarks suggest otherwise.

Do you mind telling us what was sold? That's what matters. You've only told us what was kept and what has happened since. I think you, and consequently some respondents here, are too distracted by that.

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By MrsP
17th Jan 2019 22:31

Dear Mr Tax Dragon,

175 acres was sold together with all the buildings. The entire suckler herd (up to 200 cattle) was also sold, plus all the machinery (tractor, Merlo, trailers etc). My husband now spends most of his time in the house and garden. We are going to see a specialist accountant tomorrow and I am taking all of this correspondence with us. I hope very much that this new accountant will give us the absolute reassurance and written advice that we seek.

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