CG64035 - BADR: disposal of part of a business, factors arising from case law

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.

The Retirement Relief cases mentioned in CG64020 and CG64021 bring out the following points on how a business can be shown to have been disposed of.

• It must be looked at from the vendor’s point of view. The question is whether the business (or part of it) has been disposed of.
• It is not necessary for the vendor to get rid of all the assets in the business or the relevant part of the business at the same time. For instance, Mr Daffurn retained his covered yard in 1986, but the disposal still qualified for relief, and Mr Rawlings did not get rid of all his cattle at once, but was able to show that he had disposed of his dairy business.

The case of McGregor v Adcock (51TC692), details of which can be found at CG64020 was a case where, substantially the same business continued after the sale as before. For a disposal to be part of a business, the business should be sufficiently different after the sale to show that what was sold included activities which previously formed part of a business, but subsequently did not. A simple example would be where a trade of wholesale and retail operations disposed of the wholesale activity and the assets associated with it.

The First Tier Tax Tribunal decision in Mr M Gilbert t/a United Foods v HMRC [2011]UKFTT 705 (TC) considered the meaning of part of a business. This confirmed that it is also possible to take account of the viewpoint of the buyer. The distinction between activities and assets remains (see CG64030) along with the requirement that those activities should be able to be carried on as a trade in their own right.

The activities which form the disposal need not be significantly different from those which remain. Where one business is carried out from 10 locations and 1 is sold, that disposal could be “part of a business” if the disposal included all of the necessary trading activities to operate.

If however one business is carried out from 10 locations and one property is sold without say the benefit of supply agreements, stock, customer lists, etc. then the facts may show that what was sold was simply a bundle of assets and not a “part of a business”.

The capital allowances case of Maco Door and Window Hardware (UK) Ltd v HMRC, as cited by the FTT in Gilbert, may be useful when considering whether what was sold could operate as a trade.

A proper view can only be taken once you have established all the facts to build a complete picture of the business; what has been disposed of and what changes, if any, have happened to the business before and after the disposal?