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Tony Wickenden: The part of the matter

To qualify for entrepreneurs’ relief, as well as satisfying the other conditions, there has to be a disposal of the whole or part of the business, which must be distinguished from the mere sale of an asset used in the business. Whether or not there is a disposal of part of the business is a question of fact.

For the purposes of retirement relief, TCGA 1992 section 163(2)(a) stated that “a disposal of business assets is… a disposal of the whole or part of a business” which is the same language used in TCGA 1992 section 169I(2)(a). There is guidance on the meaning of “whole or part of the business” in the HM Revenue & Customs’ capital gains manual as follows:

“In many cases, there will be no difficulty in deciding that such a disposal has occurred. For example, a trader may sell the whole of his business as a going concern. Clearly the trader has sold his business. Or someone may own shops in different towns and sell one of them, but continue with the other. Whether or not this amounts to the disposal of the whole or part of a business depends on the facts.

“The trader may be able to show that entirely separate businesses, connected only by common ownership, were conducted from each shop. Another possibility is that the activities at each shop, whilst contributing to a single business, form a separate, distinct and clearly identifiable part of the trade.

“For example, one shop may have been an outlet dealing exclusively with wholesale customers whilst the other was used only for retail purposes.

“But in other cases it will not be so easy to determine if the whole or part of a business has been disposed of.

“This is often so when only some of the assets of the business are sold. The important point here is that a disposal of a business asset, or assets, is not necessarily a disposal of the whole or part of a business.

“Where it is not clear whether there has been a disposal of the whole or part of a business or not, it is critically important to establish all the relevant facts, so that a complete picture of the business, including the changes which have been made to it, can be built up for the period involved.

The important point here is that a disposal of a business asset, or assets, is not necessarily a disposal of the whole or part of a business

“Help in deciding whether there has been a disposal of the whole or part of a business, and what assets are included in any such disposal can be derived from the judgements in decided cases.”

The particular question for entrepreneurs’ relief is whether a part of a business has been disposed of. This question will arise when only some of the assets of the business are sold. The important point here is that a disposal of a business asset, or assets, is not necessarily a disposal of the whole or part of a business.

HMRC has stated that in deciding whether there has been a disposal of the whole or part of a business, and what assets are included in any such disposal, guidance can be derived from the judgements in decided cases concerning retirement relief. One of the more frequently quoted cases is McGregor v Adcock.

Mr Adcock had carried on a mixed farming business – arable, pigs, beef and hay – on 35 acres of land owned by him. In 1973, he obtained outline planning permission on 4.8 acres, which he then sold in October 1973.

The commissioners allowed retirement relief on the grounds that the sale by a farmer of any of the farm-land constituted a disposal of part of the business.

In their view, a farming business was “the gaining of saleable produce, both animal and vegetable, from the occupation of land with the aim of earning a profit”.

In the High Court, Fox J drew a distinction between the business and the individual assets used in the business.

The sale of farmland alone was not necessarily a disposal of part of the business, merely a factor to be taken into account in deciding whether there had been such a disposal.

On the facts of the case, substantially the same business continued after the sale of the 4.8 acres as had been carried on before. There was no disposal of any part of that business and relief was not due.

This case draws out the fundamental distinction between the sale of a part of a business and the sale of individual business assets.

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