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Entrepreneurs’ Relief: Draft Legislation and Guidance Notes

HMRC have published draft legislation, with guidance notes and FAQs to firm up some more of the details of the new CGT entrepreneurs’ relief announced last month.  Much of the small print to the relief derives from the former retirement relief which was withdrawn in 2003/04.

 

• The relief will not apply to past disposals and so the £1million “lifetime allowance” only commences when the relief is first claimed.
• The relief will be available in respect of the held-over gains that become chargeable on or after 6 April 2008.
• Gains on disposals of let residential properties will not qualify for entrepreneurs’ relief, but furnished holiday lettings will do so.
• A disposal of let commercial property will not qualify for entrepreneurs’ relief.  There must be a disposal of the whole or part of a trading business and commercial property letting is not a trading activity.
• If a property is let to a trading partnership of which you are a member, or to a trading company of which you are an officer or employee, you may be entitled to a measure of relief on disposal of the property if that disposal is associated with a disposal of your interest in the partnership, or of your shares in the company and that other disposal meets all the conditions for the relief.
• Relief is on the disposal of the whole of part of the trading business.  The sale of an asset in isolation (eg a part disposal of, say, farm land) will not qualify for the relief. 
• A part sale of shareholdings will qualify for entrepreneurs’ relief, providing the 5% conditions for the relief are met.
• Relief may be available in respect of the deferred gain that comes into charge on the sale of EIS shares, if the sale of your business would have qualified for entrepreneurs’ relief if that relief had been available in July 2003.
• There are no rules about the working hours of officers and employees.  The condition is only that the individual is an officer or employee of the company throughout the one year qualifying period.  However in order to qualify for relief all the qualifying conditions have to be met.
• Relief will be available on share for share exchanges or for loan notes when gains are ineffectively deferred or rolled over but the way it will be given depends upon whether the loan notes are qualifying corporate bonds or not.
• Net gains after entrepreneurs’ relief may be deferred by investing in EIS shares.