So how did businesses take advantage of the 10% rate of capital gain tax payable on the selling of a business after the 5th April this year? Linda Bennett of LK Bennett shoes and the potato farmer behind Tyrells Crisps had a neat trick. They effectively “sold” their businesses to a trust otherwise known as warehousing. Capital gains tax rules judge the date of disposal as being when an unconditional contract is entered into, not when a deal is completed. The unconditional agreement was to sell the business to a trust contingent on finding a third party buyer. As such, this crystallised any gain so as to be liable for the 10% rate with a view to disposing of the business by the trust later in the year.

So what is the problem? The difficulty could come where the company that is warehoused is no longer able or willing to be sold. In this case the Inland Revenue may consider that you have sold a company to your trust and then effectively bought it back by tearing up the unconditional sale agreement. This would mean that you may face a large tax bill without the proceeds to pay it. Now that would be bad news.

The Inland revenue has always maintained that advance clearance or approval may be given to any sort of tax avoidance measure including company sales. As such it could be that if anyone had any doubts they should have consulted the revenue first. If the economy becomes more fragile and many potential sales fall through then entrepreneurs will also be out of pocket on stamp duty and legal fees.

However, it is unlikely that in practice the inland revenue would try and force this issue and demand payment of tax when no real benefit or proceeds have been realised. But the Inland revenue are not generally considered to be very generous so it is important to be vigilant.

First there was retirement relief, then there was business asset taper relief, and now there is entrepreneurs’ relief. No doubt the next government will try something else! The latest relief has been introduced following the uproar from small business owners who felt that the proposed 18% CGT was an unfair tax levied when they sold their businesses to fund their retirement.

The new relief, available from April 6 2008 will be available in respect of gains made on the disposal of all or part of a business or on disposals of business assets.

The first £1 million of gains that qualify for relief will be charged to capital gains tax at an effective rate of 10 per cent. The £1 million is a cumulative lifetime relief and as such can be used on a single transaction or on a series of transactions. Gains in excess of £1 million will be charged at the normal 18 per cent rate. Of course, this is not so great for entrepreneurs who will buy and sell businesses through out their lifetime. So perhaps entrepreneurs’ relief is a bit of a misnomer.

As such, the new relief is a kind of resurrection of the old retirement relief, which was phased out between 1998 and 2003. The new rules, to be enacted on April 6, are simpler. There is no minimum age limit for entrepreneurs’ relief (under retirement relief you generally had to be 50 plus to get relief). And in general, entrepreneurs’ relief will be available where the relevant conditions are met for a period of one year, instead of the retirement relief qualifying period of up to ten years.

There will be no minimum age limit for the relief. In general the new relief will be available where the relevant conditions are met for a period of one year.

Where a business simply stops trading, rather than is sold, relief will be available on gains on assets formerly used in the business and disposed of within three years of the cessation of the business.

The rules are quite complex and in order to qualify for the relief there a number of conditions that need to be met. We do take a closer look at the draft legislation in our subscribers section of the report. If you are not already a subscriber then please join us and subscribe.

It should be noted that the final legislation has not been seen so there may be some small amendments. We will take a look at the legislation and if there are any relevant changes we will post them here on this blog.