Ideally, this would be before the Budget Statement on 11 March (to minimise the risk of anti-forestalling provisions in the new rules).
Failing that (and subject to any changes announced in the Budget), they should aim to exchange contracts no later than on 5 April 2020.
No Sale in Progress
Those who have not yet begun the sale process – and those who have no wish to dispose of their business but who are attracted to Entrepreneurs Relief – will need another solution.
Depending on their circumstances (and subject to the caveat below), there are at least two options:
1 – Interim Disposal Followed By Sale
This technique was widely used in 2008 and 2010 prior to previous changes in CGT rates.
Where a business owner wants to sell a business (“Tradeco”) in the foreseeable future but will not be able to do so before 6 April 2020, it is possible to exchange unconditional contracts on an interim disposal to a structure (“Newco”) set up for the purpose.
Doing so will ‘lock-in’ to the current Entrepreneurs Relief regime because of the CGT time of disposal rules mentioned above, provided that the interim sale completes at some later date.
Ideally, a second sale to a third-party purchaser would then take place before 31 January 2021 (which is the date by which CGT on the interim disposal would be payable, assuming that sale completes).
This approach gives the business owner breathing space to arrange a commercial sale in the next twelve months or so, while having taken full benefit of Entrepreneurs Relief irrespective of any intervening change in the rules.
One refinement makes this option particularly attractive: as noted above, a CGT disposal is deemed to take place on exchange of contracts.
But if the contract does not subsequently complete for any reason then no disposal ever takes place.
It follows that if a business owner has the ability to un-wind (‘rescind’) the contract then it can be used to maximise Entrepreneurs Relief if a commercial sale is later achieved whilst avoiding any material downside risk if it is not.
If it is not possible to find a commercial buyer for Newco by a specified long-stop date then the owner can rescind the Newco contract.
Importantly, the power to rescind a contract for breach of a term (in this case, failure to complete by a specified date) is not classed as a condition, meaning that the sale remains unconditional.
The owner is returned to his or her original position (less only the costs of implementing the arrangements).
