UK Updates Business Investment Relief (BIR) Guidance

HM Revenue & Customs (HMRC) updated the Business Investment Relief (BIR) legislation which was introduced on April 6, 2012. With the amendments, a new category of qualifying target company is added to the target company list. These changes retroactively came into effect since April 6, 2017.

Eligible Hybrid Companies

Under the revamp, hybrid companies fulfilling all the requirements below are entitled to be BIR legislation:

• the eligible hybrid company is a private limited company, and
• it isn’t an eligible trading or stakeholder company carries on one or more commercial trades or may do so within the next 5 years, and
• it holds one or more investments in eligible trading companies or may do so within the next 5 years, and
• it carries on commercial trades and makes investments in eligible trading companies for all, or substantially all, of what it does.

As regards “non-operational” requirement for such hybrid, it refers to the hybrid not trading, and it holds no investments in any eligible trading companies, or none of the eligible trading companies it holds investments in are trading.

Partnership and Commercial Trade Condition

A company which is a partner in a partnership will not be regarded as carrying on a trade if the trade is carried on by the partnership, because it fails to meet the commercial trade test conditions, which refers to conducting on a commercial basis with a view to making profits. Whether carrying on a commercial trade is all or substantially all of a trading company’s activities, will depend on a consideration of all of the relevant facts. In addition, the relevant trade accounts for at least 80% of the company’s total activities will generally be regarded as meeting the ‘all or substantially all’ requirement.

Chargeable Events

When a qualifying investment is made, situations might arise which are treated as a potentially chargeable event, and the investment becomes chargeable when:

• the relevant person who made the investment disposes of all or part of their investment; or
• the company in which the investment fails to meet requirements and ceases to be an eligible; or
• the 5-year start up rule is breached; or
• the extraction of value rule is breached.

Source: UK Government