Entrepreneurs’ Relief - “disposal of part of a business”: meaning - case law
This section and CG64021 give details of case law on the question of whether there has been a disposal of part of a business. All the cases relate to Retirement Relief, but the fact that Parliament used the same language in the statute for Entrepreneurs’ Relief makes it likely that the courts would regard them as persuasive.
CG64035 draws together the salient points that emerge from case law. It is in that context, and only with knowledge of all the relevant facts, that a judgement can be made in a particular case as to whether there has been a disposal of a part of a business or simply of assets sold out of a continuing business.
McGregor v Adcock (51TC692)
For many years Mr Adcock had carried on a mixed farming business - arable, pigs, beef and hay - on 35 acres of land owned by him. In 1973 he obtained outline planning permission on 4.8 acres, which he then sold in October 1973.
The Commissioners allowed retirement relief on the grounds that the sale by a farmer of any of the farmland constituted a disposal of part of the business. In their view, a farming business was “the gaining of saleable produce, both animal and vegetable, from the occupation of land with the aim of earning a profit.”
On appeal, the High Court drew a distinction between the business and the individual assets used in the business. The sale of farmland alone was not necessarily a disposal of part of the business, merely a factor to be taken into account in deciding whether there had been such a disposal. On the facts of the case substantially the same business continued after the sale of the 4.8 acres as had been carried on before. There was no disposal of any part of that business and relief was not due.
This case draws out the fundamental distinction between the sale of a part of a business and the sale of individual business assets.
Atkinson v Dancer (61TC598): Mannion v Johnston (61TC598)
Mr Dancer farmed 89 acres, 22 of which were freehold and the remainder tenanted. He carried on a mixed farming business including calf, beef and sheep rearing and some arable land. He took up egg production in the 1970’s. By March 1983 however he had reduced his activities considerably. In December 1982 he entered into a conditional contract to sell 9 acres of the farmland. The condition was satisfied in December 1983 and a gain arose then on which he sought retirement relief.
Mr Johnston farmed 78 acres of land jointly with his sister. Until 1975 it was a dairy farm but he then changed to beef rearing with a few acres of corn and some potato growing. Ill-health in 1982-83 caused him to decide to retire partially and to sell part of the farm. He sold 17 acres in April 1984 and a further 18 acres to the same purchaser in December 1984. He sought retirement relief on both sales.
These cases were heard together in the High Court where it was held that
- whether there had been a disposal of the whole or part of the business or not was in each case a question of fact;
- in neither case was there such an interference with the whole complex of activity as to amount to a disposal of part of the business on each sale of the bare land. Both were therefore just disposals of assets rather than a part of the business.
Pepper v Daffurn (66TC68)
Mr Daffurn had a 113 acre farm on which he kept beef cattle and sheep. In 1986 he sold 83 acres of the farm (including the farmhouse). He continued farming on a reduced scale, and also changed from rearing to grazing cattle.
There was no dispute that the 1986 disposal attracted retirement relief. But Mr Daffurn retained a covered cattle yard from that sale. After an initial refusal he obtained planning permission for development of the yard in 1987. He sold the yard in 1988. The Commissioners allowed relief on the grounds that the sale of the yard was a disposal of part of the business.
On appeal, the High Court reversed that decision. It was held that Mr Daffurn had in mind to sell part of the land at an advantageous price. With a view to that sale he changed the nature of the business so that he no longer required the land in question for the purpose of the business. Because of that change the sale of the yard in 1988 was simply the sale of a surplus business asset. There was no disposal of any part of his business in 1988 when the yard was sold. It was not legitimate to regard the yard sale as part of the disposal which occurred in 1986 when the 83 acres were sold.
The case shows that where an asset is disposed of after the sale of part of a business, relief will be due only if that disposal directly relates to that earlier disposal.
Jarmin v Rawlings (67TC130)
Mr Rawlings had for many years owned some 64 acres of farm land, with a milking parlour and yard, a hay barn, implements, shed and cattle sheds. By October 1988 he had a dairy herd of 34 animals and employed a full-time labourer in his dairy farming enterprise, which constituted the whole of his business.
In October 1988 he sold at auction the milking parlour, yard and storage barn and a small piece of riverside pasture of no significant value for the dairy business, the whole amounting to 1.2 acres. Vacant possession was given at completion on 27 January 1989. Between the auction and completion some 14 beasts were sold as they calved. The remaining 20 beasts were physically transferred on completion to Mr Rawlings’ wife’s farm which was adjacent to his. All but six of the remaining cattle were sold by May 1989. Five of those six were sold by the end of 1989.
Mr Rawlings ceased dairying at the farm on completion, and the labourer was made redundant. The 20 or so cattle transferred to his wife’s farm remained his but he did not have any interest in or financial benefit from their milk after January 1989. Ownership of the milk quota was also retained by Mr Rawlings, but was informally transferred to his wife’s farm for the rest of the quota year ending March 1989 and was thereafter leased to third parties. After January 1989 he continued farming by rearing and finishing store cattle.
Rejecting an appeal, the High Court upheld the Commissioners’ decision that Mr Rawlings was entitled to relief. The sale by auction and completion of that sale of the milking parlour and yard coupled with the cessation at completion of all milking operations for Mr Rawlings’ benefit amounted to a disposal by him of his dairy farming business.
In this case the facts pointed to the conclusion that there was a disposal of a distinct part of the business by way of more than one transaction.