Budget 2016: Entrepreneurs’ relief – associated disposals

Where an individual makes a material disposal of a business, either in the form of a sale of shares or of a sale of an interest in a partnership, and also disposes of an asset used by that business, entrepreneurs’ relief (ER) may be available on the disposal of that asset.

Finance Act 2015 introduced changes to the associated disposal rules to combat perceived abuse of ER. Among these changes, ER was denied when the business was sold to members of the claimant’s family by amending TCGA 1992, s 169K with the introduction of “partnership purchase arrangements” and “share purchase arrangements”. The purpose of these rules was to ensure that an individual or someone connected with that individual did not enter into arrangements to acquire the interest.

Finance Bill 2016 will change the definitions of “partnership purchase arrangements” and “share purchase arrangements” by excluding

  1. the material disposal itself; and
  2. arrangements which:
  1. pre-date the material disposal and the associated disposal; and
  2. are also independent of these disposals.

The requirement that the material disposal of business assets is more than 5% or more of the claimant’s share in the partnership or shareholding does apply where the individual disposes of the whole of his interest and where he has previously held a larger stake in the business.

These changes apply to associated disposals on or after 18 March 2015.

This means that an individual will be able to claim ER on associated disposal where the disposal of the business is part of the family succession planning.