ACCA ATX ^UK Syllabus A2. Chargeable gains - Associated disposals for Entrepreneurs’ Relief / Business asset disposal relief - Notes ^{3 / 4}

Associated Disposals

Normally, to qualify for E.R.(Business asset disposal relief) an entire interest in a business or partnership must be disposed of. 

Only disposing of one asset cannot qualify for E.R. (Business asset disposal relief).

However, there is an exception if the asset qualified as an Associated Disposal.

If an individual owns a building personally and it is being used in their sole trader/partnership for business purposes, and that individual is disposing of his entire interest in the business as well as the building, the building will qualify as an associated disposal, and both disposals will attract E.R.(Business asset disposal relief).

Entrepreneurs’ relief/Business asset disposal relief is available on the disposal of the building as an associated disposal provided the following conditions are met:

1. Individual disposes of their interest in a partnership or shares in a personal company.

2. The intention is to no longer participate in the business using the premises.

3. The premises and the shares have been owned for at least two years

Illustration

Jake disposed of his entire interest in a partnership which he owned for 3 years and realised a capital gain of £100,000.

He also disposed of the building premises which was used by the partnership to conduct it's trade, he owned it for 3 years and realised a capital gain of £50,000.

What amount of capital gains tax will he pay?

• Solution

  Both of these disposals qualify for E.R./Business asset disposal relief as the following conditions have been met:

  1) Individual disposes of their interest in a partnership or shares in a personal company.
  2) The intention is to no longer participate in the business using the premises.
  3) The premises and the shares have been owned for at least two years.

  Therefore,

  Capital gain £100,000
  Capital gain £50,000
  Total £150,000
  Less A/E (£3,000)
  Taxable gain £147,000

  CGT £147,000 * 10% = £14,700