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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Entrepreneurs’ Relief: qualifying “associated disposals” - examples

Where a business is carried on in partnership or by a company, it is quite common for one (or more) of the assets used in the business to be held outside the partnership or company.

Example 1

Mrs B is in business as a dairy farmer in partnership with her two sons. In 2009 she withdraws from the business and disposes of her share in the partnership to her sons who continue the business, and this gives rise to a gain that qualifies for Entrepreneurs’ Relief. But the milk quota which the partnership used is owned by her personally (because originally she was a sole farmer at the time it was allocated), and she also sells this milk quota to her sons at a gain. This gain will also qualify for relief as an “associated disposal”.

Example 2

Mr and Mrs J own 100 per cent of the shares in a company. It carries on a manufacturing and retail trade. But the premises from which the company trades are owned personally by them, not by the company. They decide to retire and in 2008 they close the business but sell their shares in the company to a competitor who wants to acquire the intellectual property. Having stood empty it is not until 2010 that they sell the premises to a local developer to convert into apartments. Gains arise upon both transactions. As long as all the necessary conditions for Entrepreneurs’ Relief are met by both Mr and Mrs J in respect of the disposal of their shares their gains on the disposal of the premises will also attract relief as that disposal is an “associated disposal”. If Mr J qualified for Entrepreneurs’ Relief in respect of his disposal of shares, but Mrs J did not, only Mr J’s gain on disposal of the premises would qualify as an “associated disposal”.

It should be noted however that if the premises was used for some other purpose following disposal of the shares, for instance converted into apartments by Mr and Mrs J (as opposed to being sold to a developer) then when it is sold it is unlikely to be an “associated disposal”. This is because the later disposal of the property did not arise as part of their withdrawal from the business.

In any case that does not fall within the guidance at CG63995 it is important to ascertain the relevant facts to determine the reason for the delay between the relevant material disposal and the disposal of the asset in question.