Section 43: Entrepreneurs’ Relief: Trading Company Etc
Summary
1.This section changes the meaning of ‘trading company’ and ‘trading group’ as those terms are used for the purposes of entrepreneurs’ relief on capital gains tax. Under the new rules, whether a company is a trading company or the holding company of a trading group will be determined by reference to that company’s own activities (or the activities of group companies). Activities of joint venture companies in which a company holds shares will no longer be treated as carried on by the shareholder company. Activities carried on by a company in its capacity as a partner in a firm will not be treated as trading activities. These rules come into effect on 18 March 2015.
Details of the Section
2.This section amends section 169S of the Taxation of Chargeable Gains Act (TGCA) 1992.
3.Subsection (2) inserts new subsection (4A) into section 169S to amend the definitions of the terms ‘trading company’ and ‘trading group’ for the purposes of entrepreneurs’ relief. These terms have the meanings given in section 165A, subject to certain modifications given in the rest of subsection (4A).
4.Section 169S, new subsection (4A), paragraph (a) ensures that, when applying section 165A for these purposes, the special rules at subsections (7) and (12) under which a company is treated as carrying on some of the activities of a joint venture company do not apply.
5.Section 169S, new subsection (4A), paragraph (b) ensures that when determining whether a company is a trading company any activities it carries in as a member of a partnership are treated as not being trading activities.
6.Section 169S, new subsection (4A), paragraph (c) contains a rule for identifying trading groups which corresponds to the rule for trading companies in paragraph (b).
7.Subsection (3) deletes the previous definitions of ‘trading company’ and ‘trading group’ which are superseded by new subsection (4A) of section 169S.
8.Subsection (4) ensures that, for the purposes of deciding whether entrepreneurs’ relief is due, a company does not cease to be a trading company or a member of a trading group merely as a result of the new rules in this section coming into force.
9.Subsection (5) gives the date from which the new provisions are effective. The new rules for deciding whether a company is a trading company or the holding company of a trading group do not operate to recharacterise an event (such as a cessation of business) or circumstances before 18 March 2015.
Background Note
10.These new provisions are effective in relation to disposals on or after 18 March 2015 in order to prevent the forestalling which would otherwise be likely.
11.This measure removes an unintended facility under the entrepreneurs’ relief rules whereby relief could be claimed by an individual who, whilst holding 5% of a company’s shares, did not have a similar stake in the trade which gave the shares their value. Allowing relief in these circumstances is inconsistent with the relief’s purpose of supporting significant participation by claimants in businesses.
12.This measure ensures that entrepreneurs’ relief is better targeted at people who have a significant investment in a trading business.
