Before the capital gains tax changes introduced on 6 April, a business owner selling the business premises was likely to be able to claim full business asset taper relief and only pay 10% tax on the gain on the property.

The 10% rate was available whether the business property was owned personally or through the trading company.

Although the new entrepreneur’s relief will also allow business owners to pay just 10% on gains made on the sale of their businesses, there are far more restrictions than under taper relief. It is widely known that only the first GBP1m of such gains can be at 10%, but it is not so widely known that if an owner sells the business premises with the company, the 10% rate is not available on the property gain if the company has paid the owner market rate rent to use it.

The tax advantages of owning your business premises outside your trading company are long established and the many thousands of business owners who charge their company rent would not have qualified for ER on the sale of the property after 6 April 2008.

A small amendment to the ER rules in the Finance Bill now means that any market rent paid before 6 April 2008 will be ignored in calculating ER on a business property sale – so business owners will not be retrospectively penalised for charging rent to their business.

Lisa Macpherson, National Director of Tax at PKF commented:

“This is a very welcome concession, and removes a retrospective penalty for business owners. But it leaves many business owners who are contemplating selling up with some tricky decisions to make. Should they stop charging their company rent now so that more entrepreneurs’ relief is available on the eventual sale, or keep charging rent for the short term NIC savings? For those who do decide to stop charging rent now, I hope HMRC will take a sympathetic approach to rents paid in April, May and June – when business owners did not know this concession would be made.

“With a falling property market and the difficulties of selling a business increasing as the economy slows down, many business owners may decide to carry on as they are and, therefore, will not be able to take advantage of the concession when they do eventually sell up. So this is an ideal concession from the Chancellor’s perspective: it is fair to business owners, but may cost the Treasury very little in practice!”