Associated disposals pre 18 March 2015

Pre 18 March 2015

Prior to 18 March 2015, the conditions for an associated disposal were less strict, as there was no de minimus amount that an individual needed to reduce their participation in the business. As a result entrepreneurs’ relief was perceived to be available where privately owned assets used in a business were sold following a nominal reduction in participation (eg this could have been just one share).

The Finance Act 2015 changes added a statutory requirement for the material disposal to constitute a withdrawal from participation in the business on its own, before considering the associated disposal.

As discussed below, HMRC's settled view was that condition B meant that the material disposal and associated disposal taken together should constitute a withdrawal from participation in the business (with no minimum disposal threshold for shares where the material disposal was of shares in a trading company), however a strict reading of the pre FA 2015 legislation suggests that condition B only applies to the associated disposal. The change to condition A strengthens HMRC's position on this point. Professional bodies' report Example C1 (paras 57, 59-61)

For more detail on the March 2015 changes, see 'Something meaningful ' by Mark Wallace and Mark Abbott in Taxation magazine, 8 July 2015 (subscription sensitive). TCGA 1992, s 169K

See Example 1.

Associated disposals - restriction of relief – link 13

The associated disposal rules do not apply to sole traders. If a sole trader sells his business but still retains an asset (eg a building) which was being used in the trade, entrepreneurs’ relief will be available if the trader disposes of the asset within three years of cessation

These rules do not apply to isolated disposals of assets.

Entrepreneurs’ relief will be restricted on an associated disposal if:

·       the asset is used in the business for only part of the ownership period

·       the asset is only partly used in the business (ie private use element)

·       the individual is not involved in the business throughout the period

·       the asset was rented to the business (any amount of rent causes a restriction, it is not just where rent over market value is paid), but the period before 6 April 2008 is ignored TCGA 1992, s 169P

If the disposal is not a material disposal, the receipt of rent may:

·       •disqualify the disposal from being an associated disposal through TCGA 1992, s 169K(2)(3), or

·       •result in an apportionment under TCGA 1992, s 169P(4)(d)

The business must have been owned by the disposing taxpayer throughout the year prior to disposal. Likewise business assets must have been in use by the business at the date of cessation, and the business must have been owned by the vendor for the year prior to cessation.