All three of the main Political Parties included a commitment in their pre 2019 General Election manifestos to either abolish or “review and reform” entrepreneurs’ relief (ER). This sounds like the death knell for ER to apply to the proceeds from company liquidation.
There may be opportunities to take advantage of Entrepreneurs’ relief now to protect the position should the availability of relief be compromised.
However, before any action is taken it would be prudent to ensure that relief would in fact be due and that all the conditions have been in place for the required 24 months prior to the disposal. In particular :
Unincorporated Businesses
For an unincorporated business who owned what proportion of the business, and for which periods? For ER to apply there is a 5% ownership threshold to meet for company and partnership shares, although this is subject to variations for retiring partners and diluted shareholdings.
Periods of low activity
The Potter case, examined whether a period of very low activity with no actual sales could be considered to be trading. The FTT decided the minimal activity was trading, and crucially there was no investment activity in that period, so the Potters’ ER claim was upheld.
Where the trade wound down it may have changed location or nature in the last few years. In that case it can be difficult to define exactly when the trade ceased. This problem was examined in the Jeremy Rice case.
Property Letting – Trading?
Letting out property is nearly always regarded as an investment activity rather than trading, so where the business has been letting property you need to look for other activities which could be trading. The recent case of Stephen & Lynne Reneaux illustrates this problem.
The couple jointly owned two commercial units which were used for Stephen’s business until 2003. For the next 10 years the income from letting the units was reported as rental income inequal shares on the couple’s tax returns. The units were sold in 2013, and the individuals both claimed entrepreneurs’ relief on their share of the gain.
The FTT looked for substantial activity associated with the letting of the units which could be regarded as a trade, but concluded that the activities required to generate income from the units did not amount to a trade. The ER claims were rejected.