Entrepreneurs' relief on the disposal of land – William S G Russell v HMRC (TC02299)

A recent first-tier tribunal case (William S G Russell v HMRC (TC02299)) involved a claim for Entrepreneurs relief (ER) on the disposal of farm land.

Mr Russell was a one third partner in a farming business, run with his brother and sister-in-law.   Some farming land that was disposed by the partnership was agreed as being 35% of the land that that was capable of being farmed.

Mr Russell made a claim for Entrepreneurs’ relief (ER) on the basis that the sale was a material disposal of a business asset.  His main argument was that as there was a fall in profit that tied in with the percentage of land sold and the land sold was still being farmed, it therefore constituted a business.

The tribunal found that the sale did not amount to the disposal of a business, simply a disposal of a business asset.  This was because the business was being run in exactly the same way following the sale.

Interestingly, it might have been possible to successfully claim for Entrepreneurs’ relief had Mr Russell undertaken suitable planning before the sale.  A disposal of even a small part of his partnership share would have allowed the land sale to be an associated disposal.  Incorporation could also have been used in order to effect a cessation of the partnership business, thus allowing a claim for an associated disposal.

Planning before transactions take place is essential to ensure that any potential problems can be identified before they arise.  Please contact us if you are planning to dispose of assets in our Leeds office on 0113 2443502.