Where Entrepreneurs Relief is available any profit on the sale of capital assets (like land) is taxed at 10% as opposed to 28% and so this is an extremely valuable relief. The question of whether or not Entrepreneurs Relief is available is very complex as was demonstrated in recent case of ‘W S G Russell v HMRC’.
Mr Russell had a one-third share in a farming business run with his brother and sister-in-law. The total land farmed prior to the sale was 21.65 hectares of which 6.72 hectares (35%) was sold for £1,200,000. Mr Russell claimed Entrepreneurs Relief on the basis that the disposal of 35% of the land constituted a material disposal of a business asset. He argued that there was a fall in the farming profits which coincided with the sale of the land that tied in with the percentage of the land sold.
The Revenue successfully argued that there was no significant change in the way the partnership carried on the farming business before and after the sale and rejected the claim on the basis that it was merely a sale of an asset of the underlying business.
If Mr Russell had understood Entrepreneurs Relief he could have qualified. It is very important to take good advice before the sale of such assets take place to ensure that Entrepreneurs Relief can be claimed. Good advice might have saved Mr Russell about £200,000!
Please contact us if you are planning to dispose of any capital assets and want to minimise the tax you have to pay.