Entrepreneurs relief changes effective for disposals on or after 18 March 2015 may impact on some property developers and property fund structures.
Developers buying development land may find this more difficult where the land is currently used for a trading activity (either by a company, sole trader or partnership). The entrepreneurs relief rules can apply not only to a sale of a business or business interests but also associated disposals of land held personally but used in the business. Landowners and business owners often rely on this exemption and retain ownership of land outside their corporate or partnership trading activities. This can be the case in particular for farming partnerships or owner managed businesses. Such associated disposals will now only benefit from the relief if part of a disposal of a 5% stake in the business at the same time. It should still be possible for such landowners and businesses to maximise the availability of entrepreneurs relief, but the way in which the land is held and the timing of any anticipated disposal should be reviewed to ensure this remains the case.
Property fund structures where there is an underlying trading activity may also have put in place a management structure so managers receiving a shareholding interest in a management vehicle holding a small shareholding in the trading vehicle are able to qualify for entrepreneurs relief if the manager has a 5% interest in such management vehicle. Had the manager had a direct shareholding, entrepreneurs relief would not have been available because the 5% test would not be satisfied. This structure is no longer effective for share disposals after 18 March 2015. The change therefore has a degree of retrospectively applying to existing structures already in place, where a realisation by managers of their interests has not yet occurred. Managers participating in such arrangements should consequently review whether such structures remain effective, and if not consider restructuring; for example a direct holding of shares in the trading vehicle with special rights which do not upset the economics of the structure can still be effective for entrepreneurs relief purposes. New structures going forward should take into account the new rules and ensure that entrepreneurs relief remains available for managers wherever possible.