Material disposal(sale or gift) of whole or part of a sole trade / partnership business

For the disposal to be ‘material’ the business must have been owned by the vendor throughout the period of one year ending with the date of disposal. The legal considerations for whether there has been a disposal of the whole or part of a business are very similar. The only difference between the arrangements is that where the whole of a business is disposed of, there are no business activities left. In this sense it is much easier to show that what has been disposed of is a business in its own right.

For the difference between the sale of individual assets and the sale of an definable part of a business see here For a discussion of the issue where the contract date of the disposal for CGT purposes is earlier than the date of cessation see Here

Although there can be more than one transaction, assets that are retained must only be done so pending sale. Also, because the remainder of the business endures, you need to establish a link between the sale of assets, and the cessation of a distinct part of the business. Where the trader is selling an asset and continuing to trade, the relevant consideration is whether the asset constitutes 'part of a business'. This will be the case where the trader takes on a partner, or sells a separate and identifiable part of their business

Any sale of assets that occur after the disposal of the business can be treated as a further material disposal under section 169I(2)(b), relating to the disposal of assets after cessation. This means that unless the disposal of an asset occurs prior to the sale of the business, it is likely that relief will be available.

There is no general entitlement to relief simply because business assets are sold. Unless the sale of assets is linked to the sale of whole or part of a business, or its cessation, then no relief arises. This is contrary to what many sole traders might feel is appropriate. This is especially true where they have disposed of assets under the old taper relief rules, where business asset taper relief was generally available on the sale of any asset used in the trade.

Planning point
In advising in advance of a sale, you will try to ensure that there are sufficient indications of a sale of part of a business, rather than an asset. Each individual sale will have its own factors, but documenting considerations at the time can be vital.

For example, in the United Foods judgment it was stated that what characterises a sale as a going concern is a sale of goodwill where it exists. If at the time of a sale there is a valuation process on goodwill and work has been undertaken to establish that for VAT purposes the sale qualifies as that of a going concern, there will be significantly more resistance for HMRC to overcome to show that it is not a disposal of part of a business. If business premises are sold, you should ensure that the contracts entered into are those for the purchase of a business disposal, as opposed to those for a property transaction.

This is easier to achieve where assets are being sold without a replacement. For example, if a business simply moves premises, it is unlikely that they have disposed of part of a business and opened a new one.

However, a claim for rollover relief should be available in such circumstances. See the Rollover reliefs guidance note for more information.

Finally, when calculating the capital gain or loss on the disposal of land or buildings used in the business, you should consider the HMRC 'Capital gains tax for land and buildings ' toolkit. The aim of the toolkit is to help identify the key risks for the capital gains tax reporting of disposals of land and buildings.