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HMRC internal manual

Capital Gains Manual

Entrepreneurs’ Relief: disposal of part of a business, discussion of case law

In deciding whether a business, or part of it, has been disposed of, the first step is to ascertain what the business is or was.

In the Adcock case Fox J said

“A business connotes an activity”

and, with particular regard to farming,

“A business involves activity by the person conducting it. Mere occupation of land is not enough. The business of mixed farming comprises varied activities and involves the use of many things.”

Both Fox J and Peter Gibson J (in the Atkinson and Dancer cases) quoted from Rowlatt J in Graham v Green (9TC309)

“Really a different conception arises, a conception of a trade or vocation which differs in its nature …. from the individual acts which go to build it up, just as a bundle differs from odd sticks. You may say, I think, without abuse of language, there is something organic about the whole which does not exist in its separate parts.”

The idea of “business” as a bundle of activities indicates that you need to identify the full range of activities comprised within that business. If some business activities continue after the disposal you need to identify all the activities relating to a particular part of the business. For relief to be due, the activities included in the disposal need to be capable of being carried on as a business without the addition of anything further. By contrast, if an asset or assets have been sold but no particular activity or set of activities disappeared with the asset disposal, it cannot be said that any part of the business has been disposed of. Relief would not be due.

Farming

ITTOIA05/S9 treats all farming in the UK as one trade. However, it is clear from the judgments in Retirement Relief cases that the Courts were prepared to allow relief if the taxpayer disposes of one kind of farming business and then starts another. This approach should be followed for Entrepreneurs’ Relief.

For example, it may be possible for an individual to show on the facts that he has disposed of, say, a dairy farming business in its entirety, even though he has taken up another kind of farming, such as beef rearing. This would be similar to what Mr Rawlings did (see CG64020). In that example the farmer would be entitled to relief - if all the other conditions were met - on the basis that he had disposed of a business i.e. dairy farming.