The relief previously known as ‘Entrepreneurs’ Relief’ was not restricted to entrepreneurs. Nor, in general, is it available in respect of gains on the disposal of business assets (as distinct from businesses). This makes its rebranding in 2020 as ‘Business Asset Disposal Relief’ (‘BADR’) equally confusing.
But the pitfalls and problems of the relief (by whatever name known) are not limited to mere semantic challenges, as the Trustees of the Peter Buckley Settlement (‘the Trustees’) found in [2024] UKFTT 29 (TC).
The relief is available to certain trustees who dispose of shares in a trading company of which a qualifying beneficiary (‘QB’) has been a director or employee for the necessary two-year period. A QB is a person who, broadly, has an interest in possession in the trust property.
Peter Buckley was such a director and QB. So the Trustees assumed that they were entitled to claim Entrepreneurs’ Relief when they sold the shares in the company (of which they owned 100%).
They were wrong: the relief is available to trustees only where the company in question is also the ‘personal company’ of the QB (meaning that, broadly, the QB must personally hold at least 5% of the company in question).
What lies behind the policy which dictates that the relief is available in a case where the trustees own 95% and a QB 5%, yet denied where the trustees own 100%, may be a mystery: but the law is clear and, inevitably, the Trustees lost the case.
It’s not the only pitfall. It’s usually the case that in order to claim the relief, the person selling the shares must have remained an employee (or office-holder) in the company up until the date of disposal. Where there’s a dispute between shareholders resulting in one of them leaving the company, that can create problems for the unwary. Don’t give up your employment or directorship until after you’ve disposed of your shares: if you resign your directorship and only then turn to the question of selling your shares, the relief will not be available.
It’s a tricksy little relief, is this. But not wholly surprising: those with very long memories may recall that ‘Retirement Relief’ (which was its last-century predecessor and from which some of the current legislation is derived) didn’t require you to retire: and in some circumstances was available only if you could persuade HMRC (or the Inland Revenue as it then was) that you satisfied two mutually exclusive requirements!
For more information on BADR, please get in touch with your usual BKL contact or use our enquiry form.
