Finance Act 2015 introduced anti-avoidance measures which targeted arrangements where the joint venture rules were used to secure entrepreneurs’ relief (ER) in situations where an individual would not otherwise be eligible to make a claim.
The definition of a trading company in TCGA 1992, s 169S was amended by disregarding subsections (7) and (12) of s 165A. Joint venture companies were therefore excluded from the ER definition of trading company and trading group. Furthermore, a corporate entity’s interest in a partnership was also disregarded.
Following representations made on the impact of the Finance Act 2015 changes, the legislation is being amended to ensure that genuine joint venture arrangements are not caught.
Finance Act 2016 will introduce new definitions of “trading company” and “trading group” for ER purposes. Where the new definitions apply, a company which holds shares in a joint venture company will be treated as carrying on a proportion of the activities of that company corresponding to the investing company’s fractional shareholding in it. The activities of a corporate partner in a firm will be treated as having their true nature (trading or non-trading) when determining whether the company is a trading company.
This is not a reversal of the changes that were introduced in Finance Act 2015, because ER is available only where the individual has an effective 5% interest in the JV company or in the partnership.
These changes apply to disposals on or after 18 March 2015 (when the Finance Act 2015 changes took effect).
These changes mean that an individual will be able to claim ER (assuming the other ER requirements are met) on genuine joint venture arrangements.