Understanding Tax Relief Restrictions

Andrew Winearls, Partner at Whiting and Partners, explains that whilst there are rumours of a decline in the value of development land, particularly for larger development sites, growing houses still seems to be more attractive than growing crops.

Onerous section 102 levies may apply, but the tax regime remains gentle. It should not, however, be assumed that tax reliefs will automatically be available. Legislation imposes qualifying conditions, ignoring these is to invite a greater tax liability than need be incurred.

Entrepreneurs relief can only be claimed in conjunction with the disposal of an interest in a business. It is not available for any disposal of a business asset. Ensuring tax planning is in place can pay dividends. A disposal can be in favour of a wife or family member and can be of as little as a 5% holding in a limited company or 5% share of profits in a partnership. Such a disposal creates the opportunity for a claim for entrepreneur’s relief in respect of an associated disposal of a business asset. This is an asset owned by the shareholder or partner and used by the business. Payment of rent can prejudice a claim and time limits must be observed, however, the reward for getting this right is a 10% rate of tax.

For a sole trader, the disposal of an interest in the business may be made by transferring the trade to a limited company.

The conditions for rollover relief tend to be more straightforward and centre on timing, qualifying assets and amounts reinvested.

Capital gains tax at 20% on development land profits for higher rate taxpayers is, in historical terms, generous. To be able to halve that rate by planning the sale so that entrepreneur’s relief can be obtained or avoiding the tax by claiming rollover relief is just the icing on the cake.

For more information visit the Whiting and Partners website.

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