Case Report: Rice [2014] TC 03273

[2014] UKFTT 133 (TC)

Judge Guy Brannan, Sonia Gable

Decision released 29 January 2014.

CAPITAL GAINS TAX – disposal of property used in used car business — entrepreneur’s relief – TCGA 1992, s. 169I Taxation of Chargeable Gains Act 1992 - whether cessation of trade - whether disposal within three years of cessation –yes – appeal allowed

  The First-tier Tribunal allowed the taxpayer’s appeal against HMRC’s decision to disallow his claim for entrepreneurs’ relief. The Tribunal found that the differences between the way in which the taxpayer’s two successive trades were carried on and the change in location of the two trades amounted to the cessation of the first business. As the business property was sold within three years of the cessation the taxpayer was entitled to entrepreneurs’ relief.

Summary

  The taxpayer (Mr Rice) was a sole trader selling used cars. He initially traded under the name ‘Performance Cars’, selling ‘sporty’ cars from business premises on ‘Fletton Avenue’, depending on passing traffic for business. Following problems with vandalism, on 29 April 2008 the taxpayer sold his business premises at Fletton Avenue and claimed entrepreneurs’ relief under TCGA 1992, s. 169I, which HMRC denied. The taxpayer claimed to have ceased trading from Fletton Avenue in May 2005, remembering the date because it was shortly before his wife went into hospital; he then sold his stock at auction or by newspaper advertisement and according to the business rates bill the premises was empty by 1 September 2005. The taxpayer started to sell used cars from a site adjoining his home, renaming the business ‘Four Acres Car Sales’. However, because of planning restrictions vehicles could not be displayed. There was therefore no passing trade and instead the taxpayer advertised his cars on the internet. The type of cars sold also changed from sporty cars to four-wheel drive vehicles and family cars and considerably fewer cars could be kept at the Four Acres business.

  The First-tier Tribunal had to consider whether:

  If it was concluded that there had been a cessation after 29 April 2005 (i.e. within three years of the date the property was disposed of) entrepreneurs’ relief would be due.

  The Tribunal considered the change in the taxpayer’s business from one relying on passing trade to an internet business did amount to a ‘very significant change in the business’. The Tribunal concluded that the differences between the way in which and the location at which the two successive trades were carried on amounted to cessation of the trade carried on at Fletton Avenue. With regard to the cessation date, although in his evidence the taxpayer said that the period between him deciding to close the business at Fletton Avenue and completely clearing the site was ‘about six months’ (which would have taken the cessation date to more than three years before the sale of the business premises) the Tribunal accepted that on balance the taxpayer’s recollection of the cessation date in relation to his wife’s hospitalisation was more likely to be correct. The Tribunal allowed the taxpayer’s appeal and therefore the taxpayer is entitled to entrepreneurs’ relief on the disposal of the business premises at Fletton Avenue.

Comment

Phil Harris, Prinicipal at Harris & Co accountants Northampton, says "we often see issues with claiming Entrpreneur"s Relief and such claims are very often challenged by HMRC". Since entrepreneurs’ relief was introduced nearly six years ago there have been very few tribunal case decisions released involving the relief. This is perhaps because many of the concepts of the relief are largely based on the old retirement relief for which there have been many cases. This case revolved around whether the taxpayer’s business had ceased or not and the cases referred to were income tax and corporation tax cases, rather than capital gains tax cases.