Tax – Round-up


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We wait with bated breath for the post-election budget due on 8 July.

Traditionally, the first budget after an election is seen as one where the Chancellor can deliver bad news in the form of tax increases and spending cuts. Now that the Chancellor has committed not to increase income tax, VAT or national insurance during the life of this parliament, we wait to see where the axe will fall.

One point that was notable in the Queen’s speech is that the proposed new inheritance tax allowance for principal residence was omitted. The Government will presumably look at making this change later in the Parliament.

A concern has come to light about changes to entrepreneur relief that were made in the budget before the election.

One form of entrepreneur relief is called relief on ‘associated disposals’. It involves giving entrepreneur relief for the gain realised on a sale of an asset used in a trading business when the person making the disposal is withdrawing from the business.

Withdrawal from the business is now defined as the person who sells the asset disposing of at least a five per cent interest in the partnership or company that is using the asset. However, it has been noted that the budget changes to entrepreneur relief also include a further requirement that there must be no purchase arrangements that might see the tax payer or anyone connected with that tax payer acquire a further interest in the company or partnership in future.

The problem is that in most family businesses there will be, as a matter of routine, arrangements in place for other members of the family in the business to acquire shares in the company or an interest in the partnership on death or retirement of the tax payer.

The question is, exactly what does the legislation mean by ‘purchase arrangements’. If the definition of purchase arrangements includes the arrangements under the Articles of a company or a partnership agreement for other members of the family who are in the business having the option to purchase the tax payer’s interest in the business, it may become very difficult for entrepreneur relief based on associated disposal to be available to a family company or family partnership.

At present, the question has not been resolved by HMRC and until clarification is received, caution is required in attempting to claim associated disposal or entrepreneur relief on the sale of an asset used in a family company or partnership.

A version of this article appeared in County Life on 13 June 2015.

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