Entrepreneurs' Relief and Cessation of Trade – Rice v HMRC

The First-Tier Tribunal was asked to examine whether a significant change in business was in fact a cessation of one trade and the establishment of another. If so, the taxpayer would be able to claim Entrepreneurs’ relief against chargeable capital gains, in this case arising on the disposal of a property used in the original business.


Mr Rice (the ‘Appellant’), was a sole trader selling used sports cars under the name ‘Performance Cars’, from his premises on Fletton Avenue, Peterborough. The business was heavily dependent on passing traffic for trade, with the sales-garage conveniently located on one of the main roads heading into Peterborough. Unfortunately Mr Rice found that he was suffering from increasing vandalism and was forced to re-evaluate the business model.  He sold the premises on 29 April 2008.

However, Mr Rice claimed that the business at Fletton Avenue had ceased in May 2005, almost three years prior to the sale of the premises. Evidence from Peterborough City Council supported his claims and showed that his property had qualified for Empty Property Rates Relief from 1 September 2005.

Mr Rice resumed selling used cars, but this time from a field adjoining his home in a nearby village outside Peterborough.  He renamed the business ‘Four Acres Car Sales’ and had the intention of continuing where he had left off, however Peterborough Council would only grant him planning permission providing he did not display vehicles for sale to the general public. Mr Rice resolved this problem by advertising on the internet, whereby potential customers made an appointment prior to the viewing of a vehicle. Mr Rice also decided to concentrate on selling four-wheel drive vehicles and family cars as opposed to the expensive sports cars.

When the original premise on Fletton Avenue was sold, Mr Rice made a capital gain of £274,649 on which he claimed Entrepreneurs relief.

HMRC’s Case

HMRC opened an enquiry into the Entrepreneurs’ relief claim and argued that the business had ‘relocated to the grounds of (his) private residence from where trading continued more or less as before’ and denied that there had been a cessation of trade.

The Decision

The Fist-Tier Tribunal acknowledged that the trade no longer relied on passing traffic and that Mr Rice switched from selling sports cars to family cars. For these reasons they accepted the fact that very significant changes in the way in which business activities were conducted.

It was agreed that these changes constituted a cessation of trade, with the cessation taking place within the three year requisite period.

The taxpayer was therefore entitled to Entrepreneurs’ relief, and his appeal was allowed.