CGT versus Entrepeuneurs relief

LynWest
LynWest Registered Posts: 122 Beyond epic contributor 🧙‍♂️
in General accounting discussion
I have a client that in 2009 bought business assets for £x. It was a fleet of 13 narrow boats. She has sold one of them for a nice profit in Feb 2013. I have therefore divided the fleet by 1 13th to give the cost amount for capital gains. However, as this is a business asset, she is a sole trader; am i correct in assumption that she can claim entrepenuers relief at 10% instead of 18% CGT as she has disposed of a business asset? Anyone any experience of this please?

Many thanks :smile:

Comments

  • KernowAccountant
    KernowAccountant Registered Posts: 103 Epic contributor 🐘
    Time only allows a brief reply, without statutory references...

    A February 2013 disposal - are you only now doing the 2012/13 Tax Return?

    Take a step back:
    1) Has the asset ever qualified for capital allowances (regardless of whether they were claimed)?
    2) If not, is it a wasting chattel? If so, it will be exempt from CGT.
    3) if the answer to (1) was yes or (2) no, ER will only apply to "material disposals of business assets". Where the existing trade is continuing it would be quite unlikely for the disposal of a single business asset to qualify.
  • KernowAccountant
    KernowAccountant Registered Posts: 103 Epic contributor 🐘
    WHA said:



    You also need to carefully think about whether CGT is even in play here. If capital allowances have been claimed on the boats, then the proceeds of the sale of one will be applied to the capital allowances computation and subject to IT/NIC instead of CGT.

    Disposal proceeds deducted from the capital allowance pool are restricted to the original cost of the asset: CAA 2001 s.62(3).

    Subject to exemptions, any proceeds in excess of the asset's original cost will be assessed to CGT in the normal way.
  • KernowAccountant
    KernowAccountant Registered Posts: 103 Epic contributor 🐘
    WHA said:

    ER is only available when "a business" is sold, not an asset within that business. If your client sold off, say, half the boats as a separate stand alone business, it would be CGT and ER applying, but as they've only sold a single boat, I can't see that ER would be granted here.

    It's a similar scenario to a case with a farmer. The farmer sold a field, but it did not qualify for ER because it wasn't a "business" in itself. Compare that with another farmer who sold a couple of fields and a milking parlour, which did qualify because it was a "business" capable of being operated as a business, not just an asset.

    Sorry for being pedantic, but...

    Strictly, ER doesn't apply soley to the sale of "a business". It applies to qualifying business disposals, which as defined by s169H(2) of TCGA 1992 are:

    a) a material disposal of business assets (per my original post);
    b) a disposal of trust business assets; and
    c) a disposal associated with a relevant material disposal.

    While accept that your 'one field' example will usually hold true, it is not ALWAYS the case. Believe it or not, I have recently secured ER for a farming client on the disposal of a single field - I won't give any more details... that's what my clients pay for!

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