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HMRC internal manual

Capital Gains Manual

Entrepreneurs’ Relief: trading company and holding company of a trading group – activities conducted through a partnership

A partnership (or “firm”) is a group of persons who are in business together: for tax purposes, it is not a person in its own right.  A Limited Liability Partnership (LLP) is a legal person separate from its members, but is generally treated in the same way as a partnership for tax purposes, with members of an LLP treated as partners in a firm.

A partnership is therefore transparent for tax purposes and a company that is a partner in a firm or a member of an LLP is regarded as itself carrying on the partnership or LLP’s business jointly with the other partners/members (TCGA92/s59(1)(b)).

For Entrepreneurs’ Relief purposes, a company could previously have been  considered a trading company based on activities which it carried on as a partner or member. FA2015/S43(2) introduced a rule found at TCGA92/S169S(4A)(b) and (c) to change this but this was omitted by FA2016 such that it is treated as never having applied. For information purposes, the effect was as follows:

From 18 March 2015 the activities carried on by a company as a partner (or a member of an LLP) were all treated as not being trading activities, regardless of whether the firm was trading or not. This meant that a company had to be carrying on trading activities on its own behalf – and its own non-trading activities taken together with all its partnership activities could not be substantial - to qualify as a trading company for Entrepreneurs’ Relief purposes.

The coming into force of this rule, where that meant that a company was no longer a trading company or a member of a trading group, did not mean that a company was treated as having ceased to be a trading company etc. for the purposes of potential entitlement to Entrepreneurs’ Relief under TCGA92/S169I, see FA2015/S43(4).

The amended meaning of trading company and trading group at TCGA92/SCH7ZA as introduced by FA2016/S86 with effect from 18 March 2015, is explained at CG64055.