Many taxpayers, such as self-employed individuals, will be familiar with entrepreneurs’ relief (ER). The relief offers a reduced capital gains tax (CGT) rate of 10% on lifetime net aggregate chargeable gains of up to £10 million. ER is available on qualifying business disposals, including a material disposal of business assets. To be a ‘material disposal of business assets’ an individual needs to make a disposal of certain types of business asset, constituting a ‘material disposal’ (TCGA 1992, s 169I(1)).
Asset disposals after business ceases
There are three different types of business asset disposals for ER purposes. One of them is a disposal of (or of interests in) an asset or assets used for the purposes of the business when it ceased to be carried on (s 169I(2)(b)). This type of disposal was considered by the First-tier Tribunal in Amin v Revenue and Customs  UKFTT 515 (TC), discussed below.
As mentioned, to be eligible for ER, the business asset disposal must be a material one. There are various types of ‘material disposal’. In the case of disposals of business assets in use on cessation of the business, there are two requirements for a material disposal: firstly, the individual must have owned the business throughout the period of one year up to the date when the business ceases; secondly, that date is within the period of three years ending with the date of disposal (s 169I(4)).
Relief not available
In Amin, the taxpayer was a sole practitioner accountant, and also the sole owner of the practice premises. He sold a 50% interest in the business premises, by means of three separate deeds (the purchasers in all three transactions were the taxpayer, his wife and son, who were the trustees of a pension scheme).
The second deed dated 25 June 2008 was for the sale of a 22.7% interest in the premises, for consideration of £249,700. The taxpayer’s tax return for the year ended 5 April 2009 included a CGT computation relating to this disposal, on which ER was claimed. However, HM Revenue and Customs (HMRC) considered that ER did not apply, on the basis that the taxpayer’s sole practitioner business had not ceased.
The taxpayer’s case for claiming ER was that in addition to providing accountancy services, he also had audit clients. However, he was unable to carry out the audit work (as he was not qualified to do so), and so disposed of the goodwill associated with the audit work (which generated fees of around £70,000) to another accountant in April and May 2008 for a nominal consideration, in order that he could retain those clients for their non-audit accountancy work. He argued that he was entitled to ER on the disposal of the property interest because he had sold part of his business (i.e. the audit work element).
Unfortunately for the taxpayer, the First-tier Tribunal agreed with HMRC’s interpretation of the ER rules, and dismissed his appeal. The tribunal accepted that the taxpayer had disposed of his audit practice to the other accountant, but held that the ER legislation did not allow the taxpayer to claim relief for the partial disposal of his premises as a result of the disposal of his audit practice.
The tribunal in Amin contrasted the taxpayer’s claim with this example: instead of disposing of an interest in the whole business premises, suppose that the taxpayer sold distinct office space in it (e.g. the second floor of the premises), because he no longer needed that office space as the result of ceasing to carry out audit work. The tribunal accepted that, in those circumstances, ER might have been due. However, the tribunal agreed with HMRC that the partial sale of the business premises and the audit goodwill had to be seen as wholly unconnected transactions in the particular circumstances of Mr Amin’s case. This presumably means that the disposal of the interest in the business premises was not the result of his audit practice ceasing, but it needed to be for ER purposes.