Entrepreneurs' Relief Applied to Sale of Part of Business

Business people will welcome a recent ruling that the sale of part of a business qualified for entrepreneurs' relief for Capital Gains Tax purposes.

In Gilbert v. HMRC, G had carried on a business of selling food on commission. He represented nine different suppliers. In 2008, he agreed to sell part of his business to F, one of the suppliers. The sale included the records, goodwill, trade marks and customer database of the relevant part of the business. Under the sale agreement, G agreed to have no further contact with F's customers.

G made a gain of £285,000 on the sale. He claimed entrepreneurs' relief, which would reduce the chargeable gain by four-ninths. HMRC rejected the claim on the basis that G had not disposed of 'an identifiable part of the business'. G appealed.

Allowing the appeal, the Tribunal upheld G's contention that his business had comprised nine different parts (i.e. one part for each of the suppliers he represented), and that he had sold one of those parts. In the Tribunal's view the inclusion of goodwill and the customer database were the key factors for its finding that there was a sale of a going concern as opposed to the sale of the individual assets.

Although this decision is not binding and every case will depend on its facts, anyone who has disposed of part of a business in similar circumstances should consider making a claim for entrepreneurs' relief. Individuals intending to dispose of their business in stages, or who are forced to do so because they cannot find a buyer for the whole business, should take whatever steps they can (such as same day completion for the sale of different business units) to ensure that entrepreneurs' relief is available.

If you would like to know more, please contact David Dees or Nick Crook.

Filed: 18/01/2012 10:05:01