Entrepreneurs’ Relief – One year on? - April 2009
The demise of business asset taper relief was marked by a rush of planning in the run up to 5 April 2008. However, this new relief was meant to compensate those taxpayers who would be worst affected by the change to this new relief and quell the furore that was created by the change.
As the dust settled on the change it became quite apparent that whilst this relief would assist many taxpayers, there were some major differences between the two. The first of these differences was a limit of one million pounds on the amount of the relief available to each individual. Business asset taper relief had no such limit. This means that taxpayers seeking to dispose of business for more than this need to be planning for the sale at least 12 months in advance to try and maximise.
Sole traders and partnerships disposing of the whole of their business will receive the relief in full assuming that the business is regarded as a trade. However, for those hoping to claim that they have disposed of part of their business the claim could be more complex and so professional advice should be sought to avoid a nasty surprise.
If the disposal is of shares in a company then there are further restrictions including the need to hold at least 5% of the voting rights in the company and be an officer or employee for the 12 months preceding the sale. Therefore taxpayers disposing of the company shares need to consider not only the limit on the relief but whether they meet these other conditions as well.
The biggest problem surrounds those taxpayers who have been charging a rent for the use of premises from which their business trades. Prior to the new relief there was no problem for clients who took a market value rent for the use of their property but this new relief is restricted for any period where a market value rent is charged. Therefore, any clients who find themselves in this position should consider if it’s appropriate to continue to charge a market value rent for the property, although this can affect the taxpayers’ income.
The above is just a brief outline of the implications of the new relief and more importantly the need to plan well in advance.
If any of these issues affect you or for further advice on how we can help, please contact Graham Poles on
01228 690200 or email graham.poles@armstrongwatson.co.uk