An attempt to claim Entrepreneurs’ Relief on a disposal of goodwill to a close company was denied by the First Tier Tribunal (FTT). It was found that there was no unconditional contract to sell the business prior to 3 December 2014.

Signing agreement

In Frances Delaney v HMRC [2024] TC09101 a gain arising on goodwill failed to qualify for Entrepreneurs’ Relief (ER) (now known as Business Asset Disposal Relief or BADR). Despite the taxpayer and the close company taking preparatory measures, no unconditional contract had been established before 3 December 2014.

  • The taxpayer made a claim for ER on the disposal of her nursery business (which included Goodwill), to a Close company, of which she was the only shareholder and director. 
  • HMRC issued a Closure notice concluding that ER was not available on the disposal of goodwill, citing that there was no Unconditional contract for disposal prior to 3 December 2014.
  • The parties agreed that if the disposal occurred prior to 3 December 2014, ER would be available on the goodwill. If the disposal occurred on or after 3 December 2014, ER would not be available on the goodwill.
  • A disposal is treated as being made on the date the unconditional contract giving rise to the disposal is made. 
  • It is for the taxpayer to show that on balance of probability, there was an enforceable unconditional contract for the transfer of the business before 3 December 2014. 

The FTT found that: 

  • The essential characteristics of a contract are: an intention to enter into a legally binding relationship; mutuality of obligation; and certainty.
  • There was no written contract or definite intention that the taxpayer would incorporate the business before 3 December 2014.
  • Preparatory steps including the incorporation of the close company, lease agreement, employment of a teacher and engagement with a firm to carry out the incorporation and sale of business are not sufficient to create an unconditional contract. 
  • The close company was simply putting itself in a position to acquire the business. On 3 December 2014, it was not in a position to be certain that it could take any proposed transfer.
  • On 3 December 2014, there was no agreed mechanism by reference to which the consideration payable for the transfer would be determined and thereby there was a lack of certainty that the close company would acquire the business and at what price. 

The Appeal was dismissed.

Useful guides on this topic

Business Asset Disposal Relief (Entrepreneurs' Relief): Disposal of a business
Entrepreneurs' Relief (ER) was renamed Business Asset Disposal Relief (BADR) by Finance Act 2020. When does BADR apply? What is the rate of BADR? How do you claim BADR? What BADR case law is there?

Goodwill & incorporation: Tax issues
What are the tax issues in respect of Intangible Property (IP) assets, such as goodwill, on incorporation? What tax reliefs apply if you buy and sell goodwill and IP? What are the valuation and clearance procedures?

Close companies: Definitions & control
What is a Close company? What are the tax consequences? What is a Participator? What is meant by Control of company? What are the tests for Control?

Closure notices
When does HMRC issue a Closure Notice? Can a taxpayer demand one? Are there appeal rights?

CGT: Date of acquisition or disposal
When is the date of acquisition or disposal of an asset for Capital Gains Tax (CGT) purposes? When do special rules apply? Why does it matter?

How to appeal an HMRC decision
Disagree with an HMRC decision? How do you appeal, what type of decision can you appeal and what are your different options when you disagree with HMRC? What are the key steps in making an appeal?

External Links 

Frances Delaney v HMRC [2024] TC09101