Further tightening of entrepreneurs’ relief rules
The December 2014 Autumn Statement included the unexpected announcement that the disposal of goodwill to a close company related to the vendor would no longer qualify for capital gains tax entrepreneurs’ relief.
The Chancellor has announced two further measures, effective immediately, that will further restrict the availability of entrepreneurs’ relief on disposals of business assets in certain cases, increasing the tax payable on such disposals from 10% to the main rate of 28%.
The first measure tightens the rules on claims to entrepreneurs’ relief in respect of disposals of assets, held personally by an individual, but used in the trade of their partnership or company. Subject to certain conditions, it is possible to claim the 10% entrepreneurs’ relief rate of tax on such disposals, where they are associated with a full or partial withdrawal from the business itself. Withdrawal from the business was not previously defined, leaving open the possibility of a claim to entrepreneurs’ relief on asset disposals at the same time as a very small reduction to an individual’s shareholding or partnership share.
To ensure that entrepreneurs’ relief is only available where an individual has genuinely withdrawn from a business, it is now only available on disposals of personally held assets where they accompany a disposal of at least a 5% shareholding in a company or at least a 5% share in the assets of a partnership.
The second measure aims to restrict entrepreneurs’ relief to those with a genuine stake in a trading business and prevents claims to the relief in respect of gains on shares in certain companies which invest in joint venture companies, or which are members of partnerships. In these circumstances, relief will be denied. Shares in normal trading companies or the holding companies of genuine trading groups should not be affected.
Capital gains tax on wasting assets
The government has announced that legislation will be introduced in Finance Bill 2015 clarifying that the capital gains tax exemption, for certain wasting assets, is only available where the qualifying assets have been used in the seller’s own business.
This measure is being introduced to tighten up on perceived avoidance arrangements involving the loaning of assets to third party businesses in order to fall within the wasting assets exemption. More details will be known on publication of the draft legislation next week.
The normal wasting asset exemption, where there is an expected life of less than 50 years, should not be affected.