Entrepreneurs’ relief not available on disposals

The taxpayers were directors in Phoenix Spencer Sandbanks Ltd (PSSL) until June 2018 when they sold their shares to an affiliated company and subsequently resigned. The company was incorporated to provide a loan to a third party to acquire a property for redevelopment. It later acquired the property by discharging the loan and received rental income from letting it out.

The taxpayers claimed entrepreneurs’ relief on the ground that the share disposals were qualifying business disposals. HMRC disagreed. The taxpayers appealed.

The First-tier Tribunal found that PSSL was not carrying on a trade during the one-year period before the disposals. The company’s only income during that time was rental income from the property which was held as an investment asset.

However the tribunal accepted that the company’s steps to progress the redevelopment of the property indicated that it was preparing to start a trade and therefore constituted...