Be Careful
Whilst the introduction of ER goes some way to mitigating the loss of taper and indexation relief, the Chancellor’s plan for a simple tax system has evaporated.
Considerable care will be needed in planning to obtain the benefit of ER. There are a number of traps for the unwary. These include the following areas:
- The disposal of a property used by an unincorporated business may not qualify if it is not related to the disposal of the whole, or part, of the business. For example, the sale of some land by a farmer would not qualify for relief as neither the whole, nor a part, of a business has been sold. Rather, it is a business asset that has been sold.
- The disposal of shares in a trading company may not qualify for ER if the company has ‘substantial’ non-trading activities in, broadly, the year preceding the disposal of the shares. HMRC view ‘substantial’ as meaning 20% of the activities of the company.
- There is no relief on the disposal of an investment asset. For example, where a partner retires and personally owns the partnership property, ER is potentially available on the disposal of the property but not if it is an investment asset. If the property has been let at a market value rent to the partnership, ER will not be available on any gain arising on the disposal of the property. Relief would be available if the property had been let rent-free.
As ever, tax is not straight forward. If you would like to discuss ER in detail and how it might affect your business, please do get in touch. |
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