SolvedCG63980 | Business Asset Disposal Relief: qualifying disposals by individuals: examples
From HM Revenue & Customs · Capital Gains Manual
Entrepreneurs’ Relief was renamed in Finance Act 2020 with effect from 6 April 2020. The new name is generally used in this guidance but should be read as applying to times before that date.
Example 1
S sells her trading business, which she has owned for the last 8 years, in February 2009 and realises gains and losses as follows:-
| Gain of £250,000 | on her factory premises |
|---|---|
| Gain of £300,000 | on goodwill |
| Loss of £100,000 | on her retail shop |
Each of these gains and losses arising from the disposal of the business will constitute a ‘material disposal of business assets’ by S as an individual. Together they give net gains (see CG64125) of £450,000, which will qualify for relief.
Example 2
In 1995 E purchased a buy-to-let property for £100,000 that is let out on an assured short-hold tenancy basis. He sells this property in October 2008 for £250,000. The gain is £150,000.
This gain is not eligible for relief as it does not constitute a material disposal of business assets. For the purposes of this relief a ‘business’ has to be a ‘trade, profession or vocation’. The straightforward letting of property is not a trade.
Example 3
R has been an equal member of a 4 person trading partnership for several years. He retires completely from the partnership and disposes of his interest in partnership assets to the other partners, realising gains of £125,000. All of these gains will qualify for the relief as they will constitute a material disposal of the whole of R’s interest in the partnership.
Alternatively R may decide to work part time and agrees to reduce his partnership share to 10% from the original 25%. He sells the balance of his interests in the partnership assets to the other partners and realises chargeable gains of £75,000. R may claim relief because the 15% share of the partnership interests he disposed of will constitute a material disposal of part of his interest in the business of the partnership.
Example 4
F has carried on a retail business for 5 years. In July 2010 he takes on W as a partner. W pays £300,000 to F to enter into the partnership agreement which shares the interest in all of the business assets equally between them. The £300,000 received by F is a capital receipt in his hands which may give rise to a gain, as he disposes of a 50% interest in each of the business assets. Those gains may qualify for relief because F’s disposal is a material disposal of part of his business to W, his new business partner.
Example 5
T sells his shares in his company in September 2020 and realises a gain of £360,000. The company was a trading company but ceased to trade in August 2019. Since February 1995 he had owned 50% of the ordinary shares of the company, which entitled him to 50% of the voting rights. Since 1997 he has been a director of the company. T’s gain will qualify for relief because even though T’s company had not traded throughout the 2 years prior to the disposal of the shares it had been a trading company within the period of three years prior to the disposal and it had been his personal company and he had been an officer of the company throughout the 2 years prior to the trade ceasing.
Example 6
N sells her business in 2009 and realises a gain of £99,000. This qualifies for relief because it will constitute a ‘material disposal of business assets’. N claims relief, but also makes an investment of £80,000 in qualifying Enterprise Investment Shares (EIS) and claims to defer the gain.
N’s gain of £99,000 is reduced by 4/9ths, resulting in a chargeable gain of £55,000 - see CG64125. The investment in EIS shares exceeds £55,000, so the whole of the chargeable gain of £55,000 is deferred. This amount will come into charge at some later time under the normal EIS rules for charging deferred gains - see CG62800.