Chapter 10 - Entrepreneurs' Relief

Question 1

Basics

Answer 1

ER is a relief available to people who sell or give away their business. It’s available where there is either:

1) a material disposal of business assets
2) a disposal which is associated with a material disposal

Question 2

Most Common Availability

Answer 2

• Sole traders and partners selling all or part of their business, including FHLs
• Company directors and employees who sell from a ‘material stake’ - works for a company and has at least 5% of voting rights
• Company directors who acquired shares under EMI

Question 3

Operation of the Relief

Answer 3

ER reduces the rate of CGT to 10% on qualifying disposals no matter what rate tax payer they are. There’s a lifetime limit of £10 million. Gains qualifying for ER are used against remaining basic rate band in priority.

Question 4

Annual Exemption

Answer 4

AE should be deducted in order to minimise ie deduct from gains subject to 20% tax first

Question 5

Lifetime Limit

Answer 5

£10 million. Remaining limit it £10 mil - any prior ER relieved gains

Question 6

Business Assets

Answer 6

Business Asset means:

a) the whole or part of a sole trade or partnership
b) disposal of an asset used in a business at the time the business ceases to be carried on; or
c) disposal of shares in a company

Question 7

Material Disposal

Answer 7

Material Disposal Means:

a) a sole trade or parntership must’ve been owned for at least 1 year prior to sale
b) asset must be sold within 3 years of cessation
c) must be owned for 1 year prior to sale where the taxpayer has at least 5% of shares and voting rights, and they work for the company

Question 8

Associated Disposals

Answer 8

Associated disposals also qualify. A disposal is associated where the taxpayer:

• makes a material disposal of a business/shares in a company; and
• as part of the withdrawal from the business, they make a disposal of an asset which had been used in the business; and
• the asset disposed of had been used for 1 year and has been owned for 3 years prior to disposal

Question 9

Associated Disposals in Partnership

Answer 9

There’s an exception for partnership interests. The disposal can be less than 5% where it is the whole of the interest being sold and the person owned 5% or more for 3 of the 8 years before the disposal

Question 10

Associated Disposals - Rent for Use of Assets

Answer 10

If rent has been charged to the business for the use of the asset being sold, this receipt of rent restricts the availability of ER:

• If no rent is charged, full ER
• if full commercial rent charged, no ER
• if less than rate rent charged, some ER available