CG64000 - Business Asset Disposal Relief: qualifying “associated disposals” - examples
Entrepreneurs’ Relief was renamed in Finance Act 2020 with effect from 6 April 2020. The new name is generally used in this guidance but should be read as applying to times before that date.
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.
For disposals on or after 18 March 2015 there is a requirement for a minimum size of the “material disposal” of at least 5%, see CG63996.
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 the relief. But the milk quota which the partnership used is owned by her personally (because she was a sole farmer at the time it was allocated), and she 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. The premises stand empty until 2010, when they sell them to a local developer to convert into apartments. Gains arise upon both transactions. As long as all the necessary conditions for the 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 the 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), the eventual sale 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 CG63998 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.