Entrepreneurs’ relief for sole traders

By Tolley
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The following Owner-Managed Businesses guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Entrepreneurs’ relief for sole traders
  • Overview
  • Disposal of whole or part of a business
  • Disposal of part of a business
  • Disposal of business assets after cessation
  • Disposal of goodwill
  • Advance planning

This guidance note discusses the application of entrepreneurs’ relief for sole traders only. See also the Conditions for entrepreneurs’ relief guidance note. For further guidance, see Simon’s Taxes C3.1302C–C3.1303A (subscription sensitive).

Overview

To be eligible for entrepreneurs’ relief, a disposal must be:

  • a material disposal of business assets
  • a disposal which is associated with a material disposal, or
  • a disposal of trust business assets

TCGA 1992, s 169H

However, only the first option is applicable to sole traders. An associated disposal can only take place where there is a material disposal which consists of a disposal of an interest in a company or partnership, so the second option is not available. The third option requires that the business is owned by a trust. See the Entrepreneurs’ relief ― trusts guidance note (subscription sensitive).

TCGA 1992, s 169K

For sole traders, there is a material disposal of business assets where the trader:

  • disposes of whole or part of their business, or
  • disposes of business assets on or after cessation

TCGA 1992, s 169I(2)

A disposal for these purposes is any kind of disposal that gives rise to a capital gain. Entrepreneurs’ relief is not just available where the business is sold or assets of the business are sold after its cessation. A gain would also arise, for example, where the business, or part of it, is gifted to a connected person, or business assets are gifted following cessation of trade.

One key condition of entrepreneurs’ relief is that the business must have been carried on for a specified amount of time up to the date of

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