Entrepreneurs Relief on sale of one of my companies

[Dwyer01]

I currently part-own 3 different companies which all trade in the same "industry" - namely the production and operation of apps for mobile phones.

We set the first company up as we began to initially experiment with different app ideas but as the business matured it made sense to split into three different companies - each covering a distinct sector of the app market. So the three companies, broadly speaking, all make money via apps that people download from the app store and use on their phones and tablets - but the types of app that each company produces and the name / branding / detailed business models / structure / management / finances of each company is vastly different.

We are in the fortunate position of having been approached by a rival app company to buy one of our groups of apps and therefore acquire the company that owns and operates those apps. If we go ahead and sell the company, which has been trading for around 2 years, will the money raised from the sale be eligible for Entrepreneurs Relief? Or would the fact that the shareholders would be continuing to trade two other "similar" companies be seen as an issue?

[LozaACCS]

The sale of the shares will be a material disposal if for at least one year prior to disposal the company is your personal trading company, ie you own at least 5% of the ordinary shares and work for the company, if you meet these conditions then ER will be available.
If the sale involves loan notes, (QCB,s) you have a choice, the gain will be frozen until the QCB is disposed of, however when that happens ER will only be available if you meet the conditions at that time, which is unlikely.
You can alternatively make an election under S 169R (TCGA 1992) to tax the gain on disposal and claim ER.

[Dwyer01]

Yes I own a major share of the company and have so since it was set up 2 years ago and it has been trading from when it was set up until now - so all of the basic conditions for ER would be met. We would be looking to dispose of the shares immediately on the day that the company is sold - no loan notes or QCBs etc would be involved.

The issue we have potentially is continuing the trade with these other companies. The specific advice I was given was:

"HMRC look dimly upon the situation where Entrepreuner's Relief is claimed but the trade or a similar trade is carred on in a different/new company. In fact, the feeling is so strong they are thinking of bringing in legislation to specifically counter this from 6th April 2016 - so that the relief would not be allowed if the individual did the same business again within a 2 year period. If the company was sold - those final distributions would instead be treated as normal dividends. Even now, as I said, it can be challenged by them via The Securities Legislation.

Ultimately, there is probably not enough legislation to say what exactly is the same trade. It is probably something that a tribunal/court would decide ultimately if HMRC challenged."

[Dwyer01]

For those who maybe aren't that familiar with the app industry, I would offer this as an analogy.

A few years ago I set up a fast food van which quickly developed into a chain of fast food restaurants. A year later I decided to try my hand at a fine dining restaurant and have now spun that out into a separate company. So now I have one company that runs a chain of fast food places and one that own a few upmarket restaurants and it makes sense for me to run them as different companies as they have different customers, different suppliers, different branding, employees, marketing partners and so on. A major fast food chain has approached to buy my fast food company out and take over all of the chains but I wish to continue and switch my focus now to the fine dining company. I sell the fast food company for an agreed amount which is paid to me personally. Can I claim ER on the sale amount and pay my 10% even though I am going to continue to trade with my other restaurant company?