Entrepreneurs' relief for trusts

Entrepreneurs' relief - trusts
Trustees are able to claim entrepreneurs' relief on the disposal of business assets held by them in the same manner that individuals can. There is no provision that would permit personal representatives to qualify for entrepreneurs' relief.

Disposals of shares or securities
The majority of trust disposals qualifying for entrepreneurs' relief are likely to be disposals of shares or securities. ‘Securities’ for this purpose essentially means non-qualifying corporate bonds, since other types of securities are exempt from capital gains tax.

In order for the shares or securities to qualify for entrepreneurs' relief certain conditions –link 9 must be met. In addition, at the time of the disposal a ‘qualifying beneficiary’ must have an interest in possession ( ie a present right to present enjoyment) in the shares or securities (and not merely for a fixed term) at the time of disposal and the company must be the ‘personal company’ –link 9 of the qualifying beneficiary. The time of disposal will, in most cases, be the date that an agreement to sell the shares is signed, rather than the date of completion of the sale if this is later. Accordingly the interest could be created immediately prior to sale and might even be a revocable interest.

In the case of jointly held shares, each joint shareholder is regarded as owning a number of shares in proportion to the size of his or her joint shareholding.

The qualifying beneficiary and ownership conditions must be satisfied for a period of at least one year, ending not earlier than three years before the date of the disposal. This allows the trustees to benefit from relief on the sale of shares in a company that has stopped trading within the last three years, for example. It also allows the trustees to qualify for relief on the sale of shares even though the company in question is no longer the ‘personal company’ of the qualifying beneficiary at the time of the disposal. In this respect the rules for trusts are more generous than the rules that apply to an individual.

For the position where more than one beneficiary has an interest in the asset see Here

Disposals of business assets
Trustees can also qualify for entrepreneurs' relief on a disposal of business assets, meaning assets used in a business by a qualifying beneficiary, or by a partnership of which the qualifying beneficiary is a partner.

The assets must be used by the business or partnership for a period of at least one year, ending not earlier than three years prior to the date of the disposal.

In addition, the qualifying beneficiary must cease to carry on the business, either on the date of the disposal or within the period of three years before that date. In the case of a partnership, this could be because the partnership ceases trading, or because the qualifying beneficiary ceases to be a partner.

How the lifeime limit works for trust gains
See Here for commentary on how the lifetime limit works for trust gains and for mixed trust/individual gains

Trustee claims for entrepreneurs' relief
Unlike individuals, the trustees are not entitled to their own individual entrepreneurs' relief allowance. Instead, the trustees must use the qualifying beneficiary’s allowance, and therefore must make a joint claim with the beneficiary in order to do so. Each individual has a lifetime limit see here which is the amount of gains that can be subject to entrepreneurs' relief. TCGA 1992, s 169N (8)

If the qualifying beneficiary makes a disposal qualifying for relief on the same day that the trustees do so, then the gain arising to the trustees is deemed to arise after the gain arising to the individual. In this way, the individual is able to obtain relief in priority to the trustees.

If the trustees make a claim then this will mean that the beneficiary will have a smaller allowance to carry forward to be set against any future gains made by him or her personally (or by the trustees of trusts of which he is a qualifying beneficiary).