Understanding Tax Relief Restrictions

Although we hear of decline in the value of development land, particularly for larger developments, growing houses continues to be more attractive to many 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 be available automatically. Legislation imposes qualifying conditions and to ignore 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. Getting tax planning in place can pay dividends. A disposal can be in favour of a wife or other 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 opens the possibility for a claim for Entrepreneurs’ Relief in relation to an associated disposal of a business asset. This would be an asset owned by the shareholder or partner and used by the business. Payment of rent can prejudice a claim and time limits have to be observed but the reward for getting things right is a 10% rate of tax.

For a Sole Trader the disposal of an interest in the business may be 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 Entrepreneurs’ Relief can be obtained or avoiding the tax by claiming Rollover Relief is just the icing on the cake.