Some Case laws affecting Business Asset Disposal Relief

Business Asset Disposal Relief (BADR), which used to be called Entrepreneurs’ Relief, has been a major part of UK taxes. It gives entrepreneurs and business owners a way…
by Prasun
October 2, 2023

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Business Asset Disposal Relief (BADR), which used to be called Entrepreneurs’ Relief, has been a major part of UK taxes. It gives entrepreneurs and business owners a way to pay less Capital Gains Tax (CGT) when they sell or get rid of some business assets.

Over the years, different court cases have changed and clarified on Retirement relief and Enterprise Relief. However, these cases are relevant to make the judgment and make a better understanding as to what BADR is and who can use it.

In this article, we look at a few important case laws that shed light on how this relief can be used.

McGregor v Adcock (1977)

The case of McGregor v Adcock (1977) revolves around a taxpayer who had been engaged in farming 35 acres of land for a period exceeding ten years. In 1973, at the age of 68, the taxpayer sold five acres of land, which had obtained planning permission for potential development, resulting in a substantial gain of £64,481.

Importantly, the taxpayer continued to operate the remaining thirty acres for farming subsequent to the sale. Her Majesty’s Revenue and Customs (HMRC) assessed the £64,481 gain as liable for Capital Gains Tax (CGT). However, the taxpayer appealed this assessment, contending that the sold five acres were integral to his farming business, thus entitling him to claim retirement relief.

Upon judicial review, the High Court determined that the land sold did not constitute an essential part of the taxpayer’s farming business, precluding him from claiming retirement relief. The court established a clear distinction between assets used in a business, such as land, and the broader concept of a ‘business,’ which encompassed a range of activities. Farming, by its nature, involved a multitude of activities and required the utilisation of numerous assets, rendering mere land occupation insufficient to establish the existence of a farming business.

The pivotal question was whether the sale of the farmland disrupted farming activities and the utilisation of assets to such an extent that it amounted to the sale of a portion of the farming business. In this case, no such disruption occurred since the taxpayer’s farming business remained unchanged even after the sale.

Although the case primarily concerned retirement relief, its significance extends to evaluating whether the sale of specific business assets constitutes the sale of a ‘part of a business.’ This aspect of the case has potential relevance to the assessment of Business Asset Disposal Relief. The Inland Revenue issued an assessment, prompting the taxpayer to appeal, contending that the gain should not qualify for retirement relief.

The court’s ruling established that retirement relief was not applicable to this disposal, as the sale did not amount to the divestment of a ‘part of the business.’

Atkinson v Dancer and Mannion v Johnston (1988)

Mr. Dancer and Mr. Johnston were both farmers with distinct agricultural operations. Mr. Dancer managed a farm covering 89 acres, comprising 22 acres of freehold land and the remainder as tenanted land. His farming endeavours encompassed a diverse mix of activities, including calf, beef, and sheep rearing, alongside some arable land use.

He expanded into egg production during the 1970s. However, by March 1983, he had significantly scaled down his agricultural activities. In December 1982, he entered into a conditional contract to sell nine acres of his farmland, and the condition was fulfilled in December 1983, resulting in a taxable gain. Mr. Dancer applied for retirement relief based on this gain.

Similarly, Mr. Johnston was a farmer operating on 78 acres of land, jointly owned with his sister. Their farm initially focused on dairy farming until 1975, when they shifted to beef rearing, along with a small area dedicated to corn and potato cultivation. Health issues in 1982-83 led Mr. Johnston to opt for partial retirement and to vend a portion of the farm. He completed the sale of 17 acres in April 1984 and an additional 18 acres to the same buyer in December 1984, seeking retirement relief for both sales.

Atkinson v Dancer and Mannion v Johnston (1988)

The High Court heard both cases collectively and ultimately rejected the claims for retirement relief in both instances. The court concluded that determining whether a whole or a part of a business had been disposed of in each case was a factual matter. Importantly, in neither case did the sales of the bare land interfere significantly with the comprehensive range of activities that constituted their respective farming businesses.

Hence, the sales were not considered disposals of parts of their businesses; instead, they were classified as straightforward asset disposals.

In summary, both Mr. Dancer and Mr. Johnston were farmers seeking retirement relief for the sales of portions of their farmland. However, the High Court ruled that neither case met the criteria for the disposal of a part of their businesses, emphasising that the key determinant was whether the sales disrupted the overall scope of activities that comprised their farming operations.

Jarmin v Rawlings (1994) (Chancery Division)

Mr Rawlings, the subject of the case study in Jarmin v Rawling (1994), possessed a 64-acre farm encompassing a milking parlour, yard, and a dairy herd of 34 animals. In a pivotal turn of events, he opted to divest himself of the milking parlour and yard in October 1988, followed by the gradual sale of 14 animals over the ensuing three months.

This marked a shift in his farming activities, as he repositioned his focus away from dairy farming, relocating a majority of his remaining livestock to his wife’s farm situated three miles distant.

With these changes, Mr Rawlings ceased dairy farming, repurposing his land to rear and finish store cattle while retaining and leasing the milk quota. The legal proceedings unfolded as the Inland Revenue issued an assessment related to the sale of the milking parlour and yard. Contesting this assessment, the taxpayer appealed and laid claim to retirement relief.

In the ensuing legal discourse, the Chancery Division upheld the earlier decision by the Special Commissioner. It was underscored that the Commissioners’ determination held merit in distinguishing the sale of the milking parlour and yard as a distinct segment of the business, separate from the activities involving rearing store cattle.

The culmination of the sale of these assets, intertwined with the cessation of milking operations, emerged as a pivotal factor leading to the classification of a disposal by Mr Rawlings of his dairy farming business. Consequently, the taxpayer’s appeal found success, resulting in the granting of retirement relief as per the court’s determination in the case.

Purves v Harrison (2000) (Chancery Division)

In the case study of Purves v Harrison (2000) that went to the Chancery Division, there was a person named Mr. Harrison who ran a business where he operated coaches and minibuses. He wanted to retire and put his business and things up for sale.

In March 1990, he sold the place where he did his business to a company. But then that company rented the place back to him for three more years. Mr. Harrison kept running his business until December 1990, when he finally sold it to a colleague.

Here’s what happened in the legal side of things: Mr. Harrison wanted to get a tax relief called retirement relief. He got this relief for the sale of his business in December 1990, but not for the sale of the place in March 1990.

The court looked into this and said that just because he was planning to sell the place along with the rest of the business later on, it didn’t mean that the two sales could be seen as one big deal. They were separate and happened quite a few months apart.

This case shows that sometimes, even if you’re selling your whole business, if it’s done in different steps, you might not get the tax relief you’re hoping for.

Gilbert v HMRC (2011) (First tier Tax Tribunal)

Mr. Gilbert executed the sale of a subset of their business assets to FFL, resulting in a gain of £285,000. The Appellant sought to apply Entrepreneurs’ Relief; an avenue designed to curtail the Capital Gains Tax (CGT) liability to a reduced sum of £22,800.06. However, HMRC invalidated this claim, sparking a dispute. Mr. Gilbert’s counterargument contended that the asset sale formed an integral component of their business, warranting eligibility for Entrepreneurs’ Relief.

Following the asset sale, Mr. Gilbert encountered limitations in the use of trademarks and was unable to maintain any communication with FFL’s customers. A noteworthy decline of 55% was observed in their gross commissions, coupled with a reduction of their customer base to 35 entities. Furthermore, Mr. Gilbert outlined subsequent arrangements to vend the remaining portion of their business to facilitate retirement.

Gilbert v HMRC (2011) (First tier Tax Tribunal)

Mr. Gilbert’s business model encompassed the commission-based sale of food products, representing nine different suppliers. This transaction pertained to the entire business domain associated with that specific supplier. This action got the attention of HMRC, which said that it wasn’t enough to just get rid of assets used in a business; a clear, separate part of the business had to be given up in order to get tax relief. HMRC also contended that the same business persisted post-sale.

Resolving this matter, the Tribunal identified Mr. Gilbert’s business as an amalgamation of nine distinct segments, each corresponding to a supplier he represented. Consequently, the Tribunal ruled in favour of Mr. Gilbert, determining that he had indeed disposed of one of these constituent segments, thereby meeting the requirements for entrepreneurs’ relief.

Amin v HMRC (2016) (First-tier Tax Tribunal)

This case mainly deals with disposal of assets or interest in assets that were utilised for the business’s operation when it is concluded.

Mr. Amin, a sole practitioner, attempted to claim Entrepreneurs’ Relief on the disposal of a 22.7% interest in a freehold building to a pension fund, of which he was one of the Trustees. Around the time of the sale, he also sold a part of his client base, specifically that of auditing clients, to a separate entity—an entity constituted by a firm of Chartered Accountants.

However, it was established that relief couldn’t be sought for the partial premises disposal due to its disconnection from the disposal of the audit practice. In essence, the sale of premises and the sale of goodwill constituted entirely separate transactions.

To qualify for Entrepreneurs’ Relief, it is essential for the asset disposal to be of material significance. Different types of ‘material disposals’ are recognised. When dealing with the disposal of business assets that were in use upon the business’s cessation, two prerequisites must be satisfied for the disposal to be considered material.

Primarily, the individual must have possessed the business continuously during the one-year period leading up to the cessation date. Secondly, this date must fall within the three-year span ending on the disposal date (as defined in section 169I(4)).

Nonetheless, there are instances where Entrepreneurs’ Relief is not accessible. In the Amin case, the taxpayer was an accountant operating as a sole practitioner and was also the sole proprietor of the practice premises. He proceeded to sell a 50% interest in the business premises through three separate deeds. The buyers in these transactions were the taxpayer, his wife, and his son, who acted as trustees for a pension scheme.

The second deed, dated 25 June 2008, encompassed the sale of a 22.7% interest in the premises for a consideration of £249,700. In his tax return for the year ending on 5 April 2009, the taxpayer presented a Capital Gains Tax (CGT) computation linked to this disposal, while simultaneously claiming Entrepreneurs’ Relief.

However, HM Revenue and Customs (HMRC) disputed the applicability of Entrepreneurs’ Relief, contending that the taxpayer’s sole practitioner business had not ceased.

The taxpayer’s argument for asserting Entrepreneurs’ Relief was grounded in the fact that, apart from his accounting services, he also held audit clients. Although he lacked the qualifications to conduct audit work, he transferred the associated goodwill (generating fees of approximately £70,000) to another accountant at nominal consideration in April and May 2008. This was done to retain those clients for non-audit accountancy services.

His position was that the Entrepreneurs’ Relief could be claimed for the property interest disposal as he had effectively sold a portion of his business, referring to the audit work element.

Regrettably for the taxpayer, the First-tier Tribunal sided with HMRC’s interpretation of the Entrepreneurs’ Relief regulations and dismissed the taxpayer’s appeal. The tribunal acknowledged the taxpayer’s disposal of his audit practice but maintained that Entrepreneurs’ Relief couldn’t be sought for the partial disposal of the premises due to the audit practice’s disposal.

In practical terms, the tribunal in this case compared the taxpayer’s case to a hypothetical scenario: instead of selling an interest in the entire business premises, envision the taxpayer selling distinct office space within it (e.g., the second floor), owing to the discontinuation of audit work. Under such circumstances, the tribunal conceded that Entrepreneurs’ Relief might be warranted.

However, the tribunal endorsed HMRC’s perspective that the partial sale of business premises and the audit goodwill were entirely unrelated transactions within Mr. Amin’s specific circumstances. This implies that the property interest’s disposal wasn’t prompted by the cessation of his audit practice, a condition necessary for Entrepreneurs’ Relief eligibility.

HMRC v Stephen Warshaw

Section 989 of the Income Tax Act 2007 defines “ordinary share capital” as all the company’s issued share capital, other than capital the holders of which have a right to a dividend at a fixed rate but have no other right to share in the company’s profits.

HMRC denied Mr. Warshaw’s claim for entrepreneurs’ relief on the basis that the company in question was not his “personal company” as required by the legislation, because certain preference shares which he held were not “ordinary share capital” as the right to a dividend was at a fixed rate.

HMRC concluded that the company in question was not Mr. Warshaw’s “personal company” because certain preference shares which he held were not “ordinary share capital”. The legislation requires that in order to be a personal company, the individual must hold at least 5% of the ordinary share capital and voting rights in the company and be entitled to at least 5% of the profits available for distribution to equity holders and assets available for distribution to equity holders on a winding up of the company.

Since the preference shares held by Mr. Warshaw did not carry any right to share in the profits of the company other than the preference dividend at a fixed rate, they were not considered to be ordinary share capital, and therefore Mr. Warshaw did not meet the requirements to have a personal company.

HMRC v Stephen Warshaw

The upper tribunal in this instance stated that, ‘Fixed rate’ requires the rate of dividend to be expressed as a fixed percentage or amount per share. So, a dividend right of 1% plus LIBOR is not a right to a dividend at a fixed rate.

As per the tribunal, to be considered ‘Fixed rate’ it is necessary for the rate to be fixed as to the amount to which it is applied.

Under the rights attached to the Preference shares, the 10% rate is applied not only to the subscription amount, but also to the aggregate amount of any accrued but unpaid dividends. As a result, the 10% rate applies to an amount which may vary and cannot be determined at the date of issue of the shares.

If the dividends had all been paid when due, then 5 years after the date of issue the rate of dividend would be 10% of the nominal value of the shares. However, if no dividends had been paid when due, then after 5 years the dividend right would equal 14.6% of the nominal value. If at any stage the arrears of dividend had been paid, the dividend right would again have become 10% of the nominal value. Upper tribunal hence do not consider that that is a right to a dividend “at a fixed rate”.

HMRC accept, as they must in Upper Tribunal view, that a dividend right of 10% of the company’s profits is not a right to a dividend at a fixed rate, because although the 10% is fixed, the amount to which it is to be applied will vary.

The Preference Shares are “ordinary share capital”, the Company was therefore Mr Warshaw’s “personal company”, and he was entitled to entrepreneurs’ relief on a disposal of his shares.


The above cases offer valuable insights into the complexities and interpretations surrounding Business Asset Disposal Relief. It’s clear that each case has contributed to shaping the understanding of the relief’s eligibility criteria, the meaning of key terms, and the application of the relief to diverse business scenarios.

These case laws underscore the importance of seeking professional advice, as the applicability of BADR can hinge on intricate details and legal nuances. Keeping abreast of such precedents can provide business owners and entrepreneurs with a better understanding of their rights and responsibilities in relation to CGT relief, ensuring that they navigate the tax landscape with confidence.


  • Prasun

    Prasun is currently pursuing his professional degree in Chartered Accountancy and has already completed most of the papers.

    View all posts

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