In Christopher Thomson v HMRC [2021] TC08337A, the First Tier Tribunal (FTT) allowed an Entrepreneurs’ Relief claim on the disposal of a partnership asset as the property disposal was part of the wider disposal of the partnership business even though that process had lasted over 20 years.

  • Mr Thomson became a partner in an accounting firm in the 1970s.
  • In 1996 he started to consider the succession of the business and agreed with two new partners a plan which would involve:
    • An annual £20,000 payment from the new partners for the £434,000 work in progress until there was a token 1% left.
    • Clients would be transferred over time to the new partners which had the effect of reducing the profit share of the appellant.
    • He would reduce his hours as appropriate to reflect the reduction in his client base.
  • By 2017-18 Mr Thomson was entitled to 20% of the partnership profits which was reduced by 8% during the year, by this point, he had disposed of 99% of the goodwill.
  • Due to the deaths of key clients and threatened litigation in respect of trustee positions held by the retiring partner the full handover was not completed until 2021.
  • In 2017-18 the partnership disposed of its office premises to his pension scheme who rented it back to the partnership.
  • Mr Thomson claimed Entrepreneurs' Relief (ER) on the disposal.
  • HMRC raised an enquiry and issued a closure notice denying the ER claim on the basis that:
    • There had only been a sale of partnership assets, this did not represent all or part of a business as required by the ER legislation.
    • While separate disposals in different tax years could be taken to be the disposal of all or part of a business, as the process had taken 22 years at the time of the disposal this did not justify this treatment.
  • Following Statutory Review, HMRC upheld the decision, and the taxpayer appealed to the FTT.

The FTT found that the disposal of the property represented the sale of part of a business as:

  • HMRC’s view that the availability of ER depends solely on the asset being disposed of was flawed.
  • The disposal of a single asset held by a business, or partnership, without the disposal of other assets would not be the disposal of all or part of a business.
  • However, whether or not there is a disposal of business assets needs to be viewed in a realistic light based on the facts. No artificial limits should be read into the legislation.
  • The appellant was, from 1996, trying to transfer ownership of the accounting practice but was hampered by longstanding relationships with key clients.
  • While the period of time over which the disposal took place was extreme, given the facts which were not in dispute, the disposal of the property was part of the wider continuing disposal of the appellant's share in the partnership business.

Useful guides on this topic

Business Asset Disposal Relief (Entrepreneurs’ Relief): Disposal of a business
Entrepreneurs' Relief (ER) was renamed Business Asset Disposal Relief (BADR) by Finance Act 2020. When does BADR apply? What is the rate of BADR? How do you claim BADR? What BADR case law is there?  

Business Asset Disposal Relief (Entrepreneurs’ Relief): At a glance
This is a freeview 'At a glance' guide to CGT Business Asset Disposal Relief (BADR), the relief formerly known as Entrepreneurs' Relief.

How to appeal an HMRC decision
Disagree with a HMRC decision? How to appeal, what type of decision can you appeal, what are your different options when you disagree with HMRC? What are the key steps in making an appeal?

External links

Christopher Thomson v HMRC [2021] TC08337A

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