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TonyTax
TonyTax, Tax Consultant
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If the sole asset in a property trading company is a piece

Customer Question

If the sole asset in a property trading company is a piece of land that has been held for 10 years that will now be sold for £ 1 miilion profit and the company is liquidated with only one shareholder,will the gain on the shares attract Entrepreneurs relief ?
Country boy
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi. Has the company ever traded, ie developed and sold property? If so, when did it last do that? What has the piece of land been used for by the company?
Customer: replied 1 year ago.
No,only held 20 acres of land with a view to profit. No income from land even though it is pasture land.
Expert:  TonyTax replied 1 year ago.
Thanks.
I would have to say that you won't qualify for entrepreneurs' relief as the asset hasn't been used in a business whether you sell the shares in the company or sell the land and extract the profit, post corporation tax. It's simply been held as an investment. Take a look at HS283 at the link below for the qualifying criteria:
https://www.gov.uk/government/publications/entrepreneurs-relief-hs275-self-assessment-helpsheet/hs275-entrepreneurs-relief-2015
If the company sells the land, it will pay corporation tax on the profit. See the link below for information on corporation tax:
https://www.gov.uk/corporation-tax-rates/rates
I hope this clarifies your situation but let me know if you have any further questions.
Customer: replied 1 year ago.
The purpose was to buy the land and sell it at a profit-ie trading,and as the value increased it was a business decision to wait that period of time. The land has always been listed in the accounts as a current asset ie as stock.
Customer: replied 1 year ago.
Does the above alter your opinion?
Expert:  TonyTax replied 1 year ago.
Stock is not a "business asset" for the purposes of entrepreneurs' relief. In any event, companies cannot claim ER and the land is owned by the company.
If anything your business asset for ER purposes is your shares in the company but the fact is you don't meet the criteria set out in HS275 because you haven't actively traded for 10 years.
By all means you can try to make a claim but in my opinion, HMRC's will say that your company is an investment company, not a trading company. A trading company trades, it doesn't do nothing for 10 years. HMRC are looking very closely at ER claims these days because in its view too many false claims have been getting through and its costing the government much more than was anticipated when ER was introduced. See pages 10 and 11 here:
http://www.att.org.uk/Resources/CIOT/ATT%20and%20CIOT%20Shared%20Resources/Entrepreneurs_%20Relief.pdf

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