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CGT: Relief denied for partnership assets

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HMRC denied entrepreneurs’ relief on the disposal of partnership assets, as the business had not yet started to trade, but the decision may have been different for corporate assets.

21st Jan 2022
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The facts of the case [TC08105], and the quantum of the capital gain, were not in dispute.

Wardle, alongside two others, established an English general partnership in January 2014, whose business was to develop, construct and operate renewable power plants at three locations in the UK.

Pre-trading activities started on 1 May 2014. Once the projects reached the stage where construction could begin, the partnership sold two plants to a third party in August 2015 and November 2015. At the time of the disposals, the partnership had not commenced trading. 

In his 2015/16 tax return, Wardle reported his share of the disposal and claimed entrepreneurs’ relief (ER).

In December 2018, HMRC issued a closure notice, denying ER. Wardle appealed to the first tier tribunal (FTT) and represented himself.

Sole issue

There was only one issue at play in this appeal: whether there was a “business”, as defined in section 169S(1) TCGA 1992:

“For the purposes of this Chapter 'a business' means anything which:

(a) is a trade, profession or vocation, and

(b) is conducted on a commercial basis and with a view to the realisation of profits.”

Ordinary reading

The FTT began with consideration of the language of s169S(1) itself.

The FTT determined that, on a straightforward reading, the definition of a “business” requires that the activity in question “is a trade” and “is conducted on a commercial basis”. The FTT noted that the use of present tense suggests that the activity should already satisfy those criteria, as preparing to carry on an activity is different from carrying on the activity. The initial conclusion, therefore, was that an activity that is preparatory to trading does not satisfy these conditions.

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Replies (1)

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By Hugo Fair
21st Jan 2022 17:04

So if the business (to develop, construct and operate renewable power plants at three locations in the UK) had been incorporated rather than set up as a partnership ... that's one expensive mistake!

Thanks (1)