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Autumn Statement 2016 - Entrepreneurs’ Relief - Associated disposals

Where a person sells an interest in a partnership or a company that attracts Capital Gains Tax (CGT) Entrepreneurs’ Relief it is possible in some instances also to claim Entrepreneurs’ Relief on an associated disposal. An associated disposal is, broadly, the disposal of an asset held outside, but used in, the business which is disposed of as part of the withdrawal from the business by the vendor.

The rules for associated disposals were revised in the Finance Act 2016. One of the conditions to obtain the relief on an associated disposal is that the asset must have been held by the vendor for a period of three years up to the date of the disposal. This condition must be satisfied in relation to all assets acquired on or after 13 June 2016.

Unfortunately the changes were flawed. The glitch in the legislation is best illustrated by an example. Let us say that a son holds one third of a farm outside the farming business (which, say, is operated by a company in which he holds one third of the shares). He owned the land and business for a number of years before 13 June 2016 and has been a director of the business for a number of years. Therefore, if he sells the business and the land the sale of the land should qualify as an associated disposal for Entrepreneurs’ Relief purposes.

However, let us say he inherited a further one sixth of the land on 14 August 2016, increasing his holding to half of the land. If he sells the business and land on, say, 31 July 2018 will he obtain Entrepreneurs’ Relief on the associated disposal of the land? On a strict interpretation of the legislation, no, as he has not held all of the land for three years or prior to 13 June 2016!

This cannot be what is intended and we were hoping this would be revised as part of the Autumn Statement. Unfortunately, the issue does not appear to have been addressed and the anomaly remains.

If you would like to discuss this further please get in contact with David Hadley or your usual Mercer & Hole contact.



Date: 25th November, 2016
Author: David Hadley


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