0835 Leisure Summer 08_aw.indd - HLL Humberts Leisure

Tax | Entrepreneur’s reliefHow muchof a relief?Sarah Cardew of Penningtons Solicitors LLP considersthe ambit of the new Entrepreneurs' Relief withparticular reference to those investing in propertyA new single 18% rate of capital gains tax was introduced forall gains on disposals made on or after 6 April 2008. The quasireplacement for taper relief, Entrepreneurs' Relief, came into effecton 6 April 2008 and has the potential to mitigate gains to 10%.Entrepreneurs' relief applies to gains made on disposals byindividuals of:■ Shares or securities in a trading company; or■ The whole or part of a business; or■ Certain assets used in a business which has ceased; or■ Certain personal assets used in a business.Disposals of shares and securitiesThere are conditions which have to be met throughout the period ofone year ending with the date of the disposal:1 The company must be a trading company (or the holdingcompany of a trading group);2 The individual must hold at least 5% of the company's ordinaryshare capital allowing the individual to exercise at least 5% of thevoting rights. The holding must be at least 5% of the ordinaryshare capital (and give at least 5% of the voting power in thecompany) so that a shareholding of 4.9% will not qualify; and3 The individual must be an officer or employee (full or part-time)of the company or, if the company is a member of a tradinggroup, of one or more companies which are members of thetrading group.Entrepreneurs' Relief can also be obtained in respect of companieswhich have ceased trading providing the conditions are satisfiedthroughout the period of one year ending with the date on whichthe company ceased trading. In addition, trading must have ceasedwithin the period of three years ending with the date of disposal.It is important to note, that providing an individual has held at least5% of the company's ordinary shares and voting power for a yearbefore the disposal, acquisitions over and above that 5% holding willqualify for relief even if those acquisitions have been held for lessthan one year.Importantly, Entrepreneurs' Relief will not apply to shares in nontradingcompanies e.g. those carrying on a property investmentbusiness. However, relief could be available for disposals of furnishedholding letting businesses. Therefore, the distinction between tradingand investment companies is very important.Transfer of a businessA business is any trade, profession or vocation conducted on acommercial basis with a view to a profit. This means that sharesand securities and other assets held by the business for investmentpurposes or assets not used for the business will not qualify.Sellers need to ensure that they are disposing of their business,rather than a collection of assets. For example, selling one asset isnot likely to constitute the sale of a business.By itself, the sale of a let property will not qualify for Entrepreneurs'Relief. There must be a disposal of the whole or part of a tradingbusiness. In particular, commercial property letting is not a tradingactivity. However, if the property is let to a trading partnership ofwhich the claimant is a member, or to a trading company of whichthe claimant is an officer or employee, the claimant may be entitledto a measure of relief on a disposal of his property if that disposalis associated with a disposal of his interest in the partnership, orof his shares in the company and that other disposal meets all theconditions for relief.The relief must be claimedRelief is not automatic and a claim has to be made on or before thefirst anniversary of 31 January after the tax year of disposal. There isno requirement that this claim must be made in the self-assessmentreturn and surprisingly, there is no set format for the claim.CapThere is a £1m lifetime cap on the amount of capital gain whichqualifies for Entrepreneurs’ Relief. The cap applies to all gainsrealised on or after 6 April 2008, even if the gains relate wholly orpartly to a period pre 6 April 2008.This article was drafted on the basis of current tax law,practice and interpretation thereof as at 9 June 2008and is intended for general guidance only. Specific legaland tax advice should always be sought in relation tothe facts of a particular situation.ContactSarah Cardew, Penningtons Solicitors LLPe: sarah.cardew@penningtons.co.ukt: 01256 407170www.penningtons.co.ukwww.humberts-leisure.comHLL Humberts Leisure 27