Background Note
15.These new provisions are effective from the date of their announcement at Autumn Statement 2014 in order to prevent the forestalling which would otherwise be likely. Draft legislation and a Tax Impact Information Note have also been published: together with these explanatory notes and the Autumn Statement 2014 itself, they provide a comprehensive picture of the changes proposed.
16.This measure supports the government’s objective to have a fair tax system for all.
17.The draft legislation published on 3 December 2014 has been amended in the light of comments received in order to allow retiring partners to claim entrepreneurs’ relief on their goodwill even if they are related parties in relation to the transferee company.
18.This measure is complementary to another measure announced at Autumn Statement 2014 (Section 26) which denies relief in computing corporation tax profits in respect of the cost of goodwill purchased in comparable circumstances. Together, these sections 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.
19.These two sections allow businesses carried on by individuals and partnerships (unincorporated businesses) to compete more fairly with similar businesses carried on by companies.
