Entrepreneurs’ relief, Investors’ relief, Companies House

The Government has made some significant amendments to the draft Finance Bill 2016 concerning entrepreneurs’ relief and investors’ relief, which take effect immediately. The procedures and costs relating to incorporation and returns filed at Companies House are also changing from 30 June 2016. We outline those changes below.

This is an
extract from our topical tax tips newsletter dated 23 June
2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

Entrepreneurs’ relief 
The associated disposal rules within entrepreneurs’ relief (ER) have been manipulated by people who arrange for their trading business to use a personally owned property for the purposes of the trade, (say as an office) for a year. A claim for ER on the sale of the property would succeed if the individual disposed of any shares or interest in the partnership at the same time as the property sale. 
  
Those associated disposal rules were changed from 18 March 2015 (by FA 2015), to discourage such manipulation. Now the taxpayer has to dispose of at least 5% of his partnership, or personal company, if he wants to claim ER on an associated disposal. Finance Bill 2016 tweaks these rules further to require the personally-held asset to be owned for at least 3 years before disposal – a change which was to apply to disposals from 18 March 2015 onwards.   
  
The Government has realised that such back-dating would mean some people would have further tax to pay on transactions which have already been completed. It has thus amended the Finance Bill 2016 such that the 3-year ownership period will only apply to assets acquired on or after 13 June 2016. 
  
The condition that the taxpayer must dispose of at least a 5% interest in his partnership is also changed by amendments to the Finance Bill 2016. In most circumstances a partner must reduce his interest in his partnership by at least 5% (eg from 20% to 15%) when he makes an associated disposal. But if the partner is retiring and he may have already reduced his interest in the partnership to below 5%. In such a case the retiring partner will be able to claim ER on an associated disposal made when he finally exits from partnership, even if that last portion of partnership interest amounts to less than 5% 

This is an
extract from our topical tax tips newsletter dated 23 June
2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

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full newsletter contained links to related source material for this
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Relief back-dated, Changes from 1 April 2015, Changes from 6 April 2015

Has the House of Commons been using a time-machine? By the time you read this MPs will have considered, and probably voted through, all 127 clauses and 21 schedules of Finance Bill 2015. We are stepping into our own time-machine today, to look at a tax change which has been back-dated to 3 December 2014, and some of the changes which come into effect on 1 April and 6 April 2015.

Relief back-dated 
In our newsletter on 11 December 2014 we explained the block on using entrepreneurs’ relief for gains arising on the transfer of goodwill on incorporation. However, it appears the draft law (which is effective for transfers on and after 3 December 2014), would catch more transactions than the Government intended it to. 
  
Entrepreneurs’ relief is in many ways the replacement for retirement relief, which applied from 1965 to the start of taper relief in 1998. The tax cases which considered whether retirement relief applied to the disposal of “part of a business” are equally relevant for entrepreneurs’ relief, (see CG64035). Thus when partners retire from a partnership, they should expect to take advantage of entrepreneurs’ relief on the transfer of their share of the partnership assets, including goodwill, to the remaining partners, as that is what the relief was intended for. 
  
However, where a partner (P) leaves the partnership and the remaining partners decide to incorporate the business, the gain on P’s share of the partnership goodwill would be blocked from benefiting from entrepreneurs’ relief. This is because P is a related party to the remaining partners and to the close company that carries on the partnership business after incorporation. Even if there is some delay between P’s retirement and the incorporation, this would not prevent the block on the relief due to the anti-avoidance provisions. 
  
The Government has solved this problem by including a new condition in TCGA 1992, s 169LA that introduces the block on entrepreneurs’ relief on the transfer of goodwill, such that the restriction won’t apply if P is a retiring partner. However, to fit the profile of a “retiring partner” P must not:
  • hold or acquire a shareholding in the close company(C ) that carries on the business transferred from the partnership, or in a company that controls C or has a major interest in C; or
  • be associated to the remaining partners who become shareholders in C other than as a partner.

This second condition could still restrict the relief for family partnerships where the older generation retires and the remaining younger generation incorporate the business. Our capital gains tax experts can help you decide whether your clients can still claim entrepreneurs’ relief on retirement or not.

This is an
extract from last week’s tax tips newsletter, dated 26 March 2015. The newsletter
itself contained links to related source material for this story and the
other two topical, timely and commercial tax tips. It’s clearly written
and extremely good value for accountants in general practice. Try it
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Entrepreneurs’ relief changes, Happy birthday!, Over turning penalties

The 2015 Budget made two adjustments to the operation of Entrepreneurs’ Relief which we outline below, as they both take effect immediately for transactions undertaken on or after 18 March 2015. We also remind you why birthdays are important for employers, and how you can challenge a penalty notice issued by HMRC.

Entrepreneurs’ relief changes

The legislation for entrepreneurs’ relief (ER) was drawn-up in a great rush with little consultation in early 2008, so it is not surprising that it has worn thin in places, such that tax avoidance schemes can pass through the holes. 
One of those glaring gaps is the treatment of associated disposals. This only applies on the disposal of a business asset held personally by a shareholder or partner, which is used by the shareholder’s personal company or his trading partnership. It does not apply where a sole-trader disposes of the assets used in his business after that business has ceased.  
The gain on the associated disposal qualifies for ER if the individual also makes a material disposal, at the same time, of shares in his company or a share of his interest in the partnership. However the legislation, until now, didn’t require the disposal to be any minimum number of shares or minimum percentage of partnership interest, to qualify as a “material disposal”. Although the shareholder is required to withdraw from the business (company or partnership) at the same time as making the associated disposal, some continuing involvement in the business is permitted. 
From 18 March 2015 a material disposal for the purposes of associated disposals will be defined as a disposal of at least 5% of the shares in the personal company or at least 5% of the partnership assets. 
The other change concerns the definition of a trading group, which until yesterday could include companies which were not trading. From 18 March 2015 the activities of joint venture companies are excluded when considering the trading activities of a group.

The fine details of these new requirements will have to be reviewed when Finance Bill 2015 is published on 24 March 2015.

This is an
extract from our tax tips newsletter dated 19 March 2015. The newsletter
itself contained links to related source material for this story and the
other two topical, timely and commercial tax tips. It’s clearly written
and extremely good value for accountants in general practice. Try it
for free by registering here>>>