Entrepreneurs relief

[A116]

Hi,
Commercial Investment property is rented to tenants from last 20 years
When the leases are expire this year the owner is thinking to run his own business either as a sole trader or through Ltd company with 100% shareholding.
If after two years running the business, the business is sold with the property or separate disposal of business and property.

The following question is require,
- Will the Entrepreneurs relief (ER) available on gain on the property.
-If ER is available, will it be on the whole gain or time apportion means only for 2 years since the owner occupy for his own business.

Many thanks in advance.

[LozaACCS]

ER is available to persons who make a material disposal of business assets.
For a sole trader material means that the business was owned by the person for at least one year prior to cessation.
For a disposal of shares material means the disposal of shares in his personal trading company in which he works and which have been held for at least 12 months prior to the disposal.
Business assets for a sole trader means the whole or part of the business (not individual assets) assets held for investment purposes are not relevant business assets.
In the case of shares the company must qualify as a trading company, the receipt by the company of investment income will not be treated as trading income.

From the information provided it appears that;
The expiration of the leases will not be a chargeable event
Whether you proceed as a sole trader or a limited company, ER will not be available unless genuine trading activity arises, from the information provided it seems neither option would qualify for ER.

[A116]

Thank you LozaACCS for your reply.
Once the owner start his business the investment business will be ceased and he will start the business with geniune trading activity.
If he start the trading business either as a sole trader or through Ltd company and subsequently dispose the whole business after 2 years.
He will own the business at least for one year prior to disposal therefore he will meet the criteria require for sole trader or own the share in the trading company.

Will he still not qualify for ER?

[LozaACCS]

He might
If the business were a sole trader then the eventual disposal of the property (associated with the disposal of all or part of the business) could qualify, the gain qualifying on the property would be restricted to the amount relating to the business use (2/20).
If you incorporated then you may be affected by the T.I.S rules and the TAAR at S396B ITTOIA 2005.
There would also be potential CGT and SDLT issues if the property were transferred to the company.
If the amount is significant you should seek formal advice