What is it?

Business asset disposal relief is a capital gains tax relief available to taxpayers who sell or give away their businesses. The business Assets Disposal Relief was previously called Entrepreneurs' Relief.

What does it do?

The aim of the business asset disposal relief is to reduce the capital gains tax on qualifying disposals to 10%, regardless of whether the taxpayer is a basic, higher or additional rate taxpayer. There is a maximum lifetime limit on which Business assets disposal relief can be claimed. The limit has been reduced to £1 million from 11thMarch 2020 (previously 10 million).

When can it be claimed?

The relief is available when there is either;

•  A material disposal of business assets
•  Disposal associated with a material disposal

Who can claim it?

Business assets disposal relief will generally be available to;

• Sole traders and partnerships selling their business (this includes furnished holiday lets)
• Company directors or employees who sell shares/securities in a personal trading company they work for (or the holding company of a trading group)
• Company directors and employees selling shares acquired under an EMI share scheme

When to claim

The business assets disposal relief must be claimed on or before the first anniversary of the 31st of January following the tax year of disposal (i.e. for disposals in tax year 2021/22, the relief must be claimed by the 31st of January 2024.

Conditions

Business assets disposals relief is available to taxpayers who make a material disposal of business assets. Let’s broadly define some of these terms.

A business asset is:

• The whole or part of a sole trade or partnership business -  a disposal of a single asset used in the business will not qualify
• Asset used in a business at the time it ceases
• Shares or securities in a company

Material means:

• The business must have been owned by the taxpayer for at least 2 years prior to the disposal
• For assets used in the business at the time of cessation, material means the business must have been owned for at least 2 years prior to cessation and the assets must be sold within 3 years of cessation.
• For securities and shares, material means that 2 years prior to disposal, the company is the taxpayer personal trading company (has minimum economic stake in the company-usually owning at least 5% of the voting rights, be entitled to 5% of profits, assets on winding up and the taxpayer must work for the company or another company in the same group) The employee or director working part time would qualify.

Tax planning notes

The business assets disposal Relief uses up any unused basic rate tax band. to reduce your tax bill, make sure to first allocate the capital gains tax annual exempt amount to any disposal with a higher tax rate, i.e residential property disposals.