Entrepreneurs’ relief on the disposal of land
In the First-tier Tribunal decision of William S G Russell (TC02299) (published on 17 October 2012), a claim for entrepreneurs’ relief (ER) on the disposal of farm land was rejected.
Mr Russell, together with his brother and sister-in-law were in partnership as farmers, using an agricultural contractors to work the land on behalf of the partnership. The only asset of the partnership was the land, since there was no farmhouse, steading, livestock or plant or machinery. The land had been inherited in 1993.
The land disposed of comprised about 35% of the land that was fit for purpose, and Mr Russell claimed ER on the basis that the land sold represented a material disposal of a business asset, particularly on the basis that there was fall in profit correlated with the percentage of the land sold. He further argued that the sale had a material impact on the profit earning capacity of the business.
However, it became apparent that the business had been run in the same way before and after the sale, the only change being the amount of profit received. The tribunal therefore concluded that the disposal did not amount to the disposal of a part of the business, but was merely the disposal of a business asset.
This decision demonstrates the importance for ER purposes of looking closely at cases that were familiar in the context of retirement relief and the tribunal made reference to the well-known retirement relief case of McGregor v Adcock, as well as Barrett v Powell, Atkinson v Dancer and Mannion v Johnston, all of which demonstrate important aspects of the distinction between the disposal of part of a business and the disposal of a business asset.
It is also important to remember that ER is not as generous as business asset taper relief used to be in connection with the disposal of business assets. ER is available only where the disposal is a ‘material disposal’ of business assets (which means a disposal of the whole or part of a business or of shares in a trading company) or a disposal associated with a material disposal.