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June 10, 2015
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Entrepreneurs' Relief and Part Disposals

In John Carver v HMRC, the First-Tier Tribunal examined whether "syndicate capacity", the right to participate in a Lloyd's of London syndicate, was in itself a business or an asset used in a business, and whether entrepreneurs' relief is available on its disposal.

Entrepreneur’s relief is available:

a)      On the sale of company shares

b)      Sale of a whole or part of a business

c)       Sale of an asset in association with the sale of a business

d)      Realisation of assets from a solvent company that has ceased trading

The Facts

  • Mr Carver was a member of 18 syndicates and was recognised as carrying on  trade as an individual (known as a ‘Name’).
  • He sold all of his capacity in one syndicate and claimed entrepreneurs’ relief on the gain.
  • He was also entered into a Members’ Agent Pooling Arrangement (MAPA) which allows a group of Names to spread their underwriting risk. Names bring their existing capacity into the MAPA and all capacity is pooled together, with the Name treated as owning a small amount of capacity in a large number of syndicates, including the capacity sold.

The Case

Mr Carver argued that the disposal of his capacity was a disposal of “part of a business”, and therefore qualified for entrepreneurs’ relief. He participated in a number of different syndicates, each of which was a separately identifiable part of his business.

It was noted that HMRC accept that entrepreneurs’ relief is available when all capacity in every syndicate is sold. Therefore the difference between that and the sale of Mr Carver’s capacity is one merely of degree.

A separate point of argument was that his activity in each syndicate was different, and as far as he was concerned, each syndicate was a separate business. Therefore, the sale of his capacity in one syndicate amounted not only to the sale of part of a business, but the sale of all of a business.

HMRC disagreed, and stressed that in order for Entrepreneurs’ Relief to be available, there must be a material disposal of business assets, i.e. a disposal of all or part of a business, or a disposal of an asset in use at the time at which the business ceased to be trading. As the disposal of the syndicate capacity did not fall within either category, the relief could not be available.

HMRC argued that the disposal of capacity could not constitute as the disposal of either all or part of a business. As Mr Carver continued trading after the disposal, he could not have disposed of all of his business, and as he retained capacity in the syndicate through the MAPA, he did not dispose of a viable section of his trade.

Capacity is merely an asset used in his trade as it is an asset that puts a member in a position to carry on the trade of underwriting. As Mr Carver did not discpose of all or part of his business, this could not qualify as an associated asset.

Conclusion

The Tribunal ruled in HMRC’s favour and held that a syndicate is an asset by which an individual can carry on the trade of underwritng. It was stressed that reducing the amount of syndicate capacity does not constitute the disposal of a business asset and ER is not available.

Therefore, entrepreneurs’ relief is only available on the disposal of a syndicate capacity provided that the disposal amounts to the disposal of a business.

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