In the recent case of Palmer v Maloney a 57 year old businessman sued his accountant for negligent advice. Mr Palmer controlled a company "Autofreight" and owned "GP Enterprises" as a sole trader. He spent 42.3 to 45 hours per week at Autofreight and 5 to 7.7 hours per week at GP Enterprises. He wished to reduce his involvement in the company in a tax efficient manner while keeping the business for his daughter who worked there. The accountant recommended the built up profits should be distributed as dividends which was done, whereas had they been distributed as capital they would have qualified for retirement relief under TCGA 1992, thus saving tax.
The Court of Appeal held on a two to one majority that "full time" meant devoting "substantially the whole of his time" as a full-time working officer or employee of the company. This excluded time spent eating, sleeping or resting and it did not require him to work on the business of one company only. To decide if someone was full-time it was necessary to compare his hours with comparable workers and the more than 40 hours spent were sufficient. Time spent as a sole trader was irrelevant.
The dissenting opinion argued that the hours spent working as a sole trader were more than de minimis and enough to deny him retirement relief.
Retirement relief will be abolished from 6 April 2003 and is already being phased out at present. Where large capital gains are involved, waiting for taper relief in the future may be more advantageous than retirement relief now.
Of course, in order to secure retirement relief, a disposal will need to be made. Where no third party buyer exists and a gift into trust for the benefit of others does not appeal, a gift into trust for the donor's primary benefit could operate to crystalise the relief without losing beneficial access. This may appeal to business owners with gains on the qualifying assets (eg. shares) within the available retirement relief.
Retirement relief is given automatically by the Inland Revenue and does not need to be claimed by the taxpayer.
The decision, although of limited value, is helpful particularly where small or medium businesses are involved.