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
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