Business Asset Disposal Relief is a 10% capital gains tax relief for individuals selling their business. Prior to 11 March 2020, this relief was known as Entrepreneurs’ Relief and was limited to the first £10 million of capital gains.
From 11 March 2020, this tax relief is limited to the first £1 million of lifetime gains. Individuals who have already claimed Entrepreneurs’ Relief on gains of £1 million or more will no longer qualify for the relief on future disposals.
- What is Business Asset Disposal Relief exactly?
- Who does Business Asset Disposal Relief apply to?
- What happens if you are selling shares or securities?
- What happens if you are selling assets you lent to the business?
- What is the lifetime limit for Business Asset Disposal Relief?
- How to claim Business Asset Disposal Relief
- When is the deadline for claiming relief?
What is Business Asset Disposal Relief exactly?
Business Asset Disposal Relief is a tax relief for individuals who dispose of certain assets. Business Asset Disposal Relief means that you may be able to pay less Capital Gains Tax (CGT) when you sell all or part of your business.
Business Asset Disposal Relief means you will only pay Capital Gains Tax at a rate of 10% on all gains made for qualifying assets.
Prior to the April 2020 Budget, this relief from CGT was known as Entrepreneurs’ Relief. However, Business Asset Disposal Relief introduces a new lifetime limit for individuals on the amount of relief they may claim. From 11 March 2020, individuals may only claim the reduced CGT rate of 10% on the first £1million of capital gains. Any gains made of £1million or over will attract a CGT rate of the prevailing main rate (currently 20 % at 2019/2020 rates).
Who does Business Asset Disposal Relief apply to?
Business Asset Disposal Relief applies to anyone selling all or part of their business provided that for the 2 years prior to selling your business you were:
- A sole trader or business partner
- You have owned the business for at least 2 years
The same conditions apply if you are closing your business rather than selling it on. You must also dispose of your business assets within 3 years to qualify for the relief.
What happens if you are selling shares or securities?
If you are selling shares in your company then you must satisfy the following conditions for at least 2 years before the date you sell your shares:
- You must be an employee or office holder (e.g. director)
- The company’s main activities must be in trading (i.e. not investment)
Additional rules apply for those who acquire shares through an Enterprise Management Incentive (EMI) scheme. If the shares are from an EMI you must have both:
- Bought the shares after 5 April 2013
- Been given the option to buy them at least 2 years before selling them
For shares held outside of an EMI, you are required to have a least 5% of the shares and voting rights in the company. You must also be entitled to 5% of either the profits or disposal proceeds, if the company is sold.
If the number of shares you hold falls below 5% because the company has issued more shares, you may still be able to claim Business Asset Disposal Relief. In such cases, you may elect to be treated as if you had sold and re-bought your shares immediately before the new shares were issued. This will create a gain on which you can claim Business Asset Disposal Relief.
If your company stops being a trading company, you can still qualify for Business Asset Disposal Relief, if you sell your shares within 3 years.
What happens if you are selling assets you lent to the business?
You may qualify for Business Asset Disposal Relief where you are selling assets you lent to a business. This applies if you sold at least 5% of your part of the business and you owned the assets but let the business use them for at least one year before the sale.
What is the lifetime limit for Business Asset Disposal Relief?
The lifetime limit for Business Asset Disposal Relief is £1 million from 11 March 2020. Prior to this date, the limit was £10 million. The lifetime limit is the total relief that an individual may claim during the course of their life. If an individual has already claimed £1 million or more under the previous scheme (Entrepreneur’s Relief) then no further tax relief will be available.
How to claim Business Asset Disposal Relief
You can claim Business Asset Disposal relief through your Self-Assessment tax return or by filling in Section A of the Business Asset Disposal Relief helpsheet.
When is the deadline for claiming relief?
The deadline for claiming relief depends on the year in which you sold or closed your business. The deadlines are as follows:
|Tax year business sold||Deadline to claim|
|2017-2018||31 January 2020|
|2018-2019||31 January 2021|
|2019-2020||31 January 2022|