Business Asset Disposal Relief

Business Asset Disposal Relief (formerly Entrepreneurs Relief) allows individuals disposing of qualifying business or business assets to pay a rate of only 10% Capital Gains Tax on sales. This 10% rate of Capital Gains Tax compares favourably with the current main rate of 20%.

Who can claim Business Asset Disposal Relief?

If you are selling all or part of your business, and both of the following apply the date of sale, you will qualify for the relief:

• you are a sole trader or a partner in a trading partnership
• you have owned the business for at least 2 years

If you are selling shares or securities both of the following must apply for at least 2 years up to the date of sale in order for you to qualify for the relief:

• you are an employee or office holder of the company (or one in the same group)
• the company’s main activities are trading (rather than investment) – or it’s the holding company of a trading group
• you hold at least 5% of the share capital and voting rights

Holders of shares acquired through an Enterprise Management Incentive scheme will qualify for the relief without the need to meet the 5% test, providing they held the original options and the shares for a combined period of 2 years.

Frequently Asked Questions

When can Business Asset Disposal Relief be claimed?

Business Asset Disposal Relief can be claimed when the business, or part of it,

• is sold to another party
• is placed into a solvent liquidation process
• is part of a restructuring of a company’s shareholding (through a formal liquidation process)

When should you claim for Business Asset Disposal Relief?

A claim for relief can only be applied following the disposal of the business and/or your shareholding and must be submitted through your self-assessment tax return to HMRC by 31st January following the end of the tax year that the sale occurred.

For example,

• if the business was sold in December 2022, the claim of relief must be submitted by 31st January 2024
• If the business was sold in March 2023, the claim must be submitted by 31st January 2024.

As a contractor, am I eligible for Business Asset Disposal Relief?

If you are a contractor, who is NOT operating under an umbrella company, you can qualify for relief if:

• you work through your own limited company as the company’s sole director and employee
• If you work as a sole trader or a partner in a business

Am I eligible for Business Asset Disposal relief if I am closing down the business as opposed to selling it on?

If you dispose of all your assets within 3 years of closing down the business, then you may claim the relief.

Are there limits to how much relief I can claim under Business Asset Disposal Relief?

There is a lifetime limit which means that the relief can only be claimed on gains of up to £1m There is no limit to how many times you can claim before you reach this limit.

There is a lifetime limit which means that the relief can only be claimed on gains of up to £1m There is no limit to how many times you can claim before you reach this limit.

What should my next steps be if I am ready to sell my business in order to be as tax efficient as possible?

Claiming Business Asset Disposal Relief may not be the only tax efficient option available to you when selling/disposing of a business and its assets. This is particularly true when the disposal is to the next generation of a family business as part of succession planning. The disposal of a business always requires careful tax planning.

For detailed advice and guidance on business disposal or succession planning, please contact David Gillies at Friend Partnership.

You can call David on 0121 633 2007 or contact him by email at david.gillies@friendllp.com