BR Guide Second Edition

29 28 BR INVESTMENT OPTIONS BR INVESTMENT OPTIONS Selling businesses: Replacement Business Property Rules Any assets that qualify for BR, can be disposed of and replaced without the need to re-set the two year holding period to obtain the relief. This means that a business owner can use replacement business property to retire rather than continuing their business, with the possibility that the value of the business could decline. In this instance, the business could be sold and, provided the proceeds are reinvested in BR-qualifying assets within three years, none of the relief is lost. Same rules for private clients Replacement business property is also used to allow a fund manager running a BR qualifying portfolio to switch clients from one AIM or non-AIM stock to another, or clients to switch their strategy from growth to income or to change manager. It is a feature that allows investors a lot of flexibility once they have passed the two-year qualifying period. If a person dies holding cash from the sale of a BR qualifying asset (i.e. before reinvestment) that cash does not qualify for BR. There are some nuances to the timing of this three-year rule: it is in fact more generous than it first appears - BR will apply, providing the ownership periods total at least two years in a five-year rolling period. It is the cumulative period of ownership within the five-year window that counts, rather than an unbroken period of ownership. Corporate BR qualification flow chart Do the shares (quoted or unquoted) give control? Have the shares been held for the minimum period of ownership? Was the company’s business carried on for gain? Was the company in the process of being wound up or liquidated? NO BR Are the shares unquoted? Do the shares qualify as replacement property or were they acquired via an earlier eligible transfer? YES NO NO YES YES NO YES Were the shares subject to a binding contract for sale at the valuation date? Does the company’s business pass the "wholly or mainly" test? Does the company have a subsidiary which does not pass the "wholly or mainly" test? Restrict relief to exclude the value of the subsidiary and consider... Does the company have excepted assets? YES YES NO YES YES NO NO NO BR NO NO BR YES NO BR NO Allow relief in full at the appropriate rate Restrict relief accordingly SOURCE: HMRC NO BR YES NO NO Relevant asset sold Relevant asset sold after ownership in 3 of last 5 years Reinvestment into relevant asset Reinvestment into relevant asset YEAR 0 YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 DEATH OF HOLDER OF RELEVANT ASSET Example of replacement business property timeline BR qualification of relevant asset OWNERSHIP OF RELEVANT ASSET The relevant asset is BR qualifying as it has been held for at least 2 of the last 5 years and it was held by the deceased on death.