A new measure was announced as part of the Autumn Statement. Entrepreneurs' Relief (ER) will no longer be available to reduce Capital Gains Tax (CGT) on disposals of the reputation and customer relationships associated with a business (the 'goodwill') to a close company to which the seller is related. This will prevent an unfair advantage to owners of businesses who sell their business to a close company and benefit from a lower CGT rate. This scheme has been used by some individuals to extract funds from a business at the reduced 10% CGT rate rather than the normal rates of Income Tax and National Insurance Contributions.
The measure will apply to disposals of goodwill to a related close company on or after 3 December 2014. The change has been made alongside another measure to restrict Corporation Tax deductions when goodwill is acquired from a related party on incorporation. As stated in the explanatory note to the new draft legislation, 'together these measures remove two incentives which encourage incorporations of businesses for tax reasons rather than for the genuine commercial benefits which may follow from a business being carried on by a company rather than by an individual. HMRC has observed an increasing trend amongst professionals and specialist traders to incorporate their businesses in order to gain these tax advantages.'