What is Business Asset Disposal Relief?
Business Asset Disposal Relief applies to the sale of a business, shares in a trading company or an individual’s interest in a trading partnership, meaning that you’ll pay tax at 10% on all gains on qualifying assets. You also may be able to pay less Capital Gains Tax when you sell or dispose of all or part of your business.
Updates to the Business Asset Disposal Relief in 2020
Business Asset Disposal Relief used to be known as Entrepreneurs’ Relief before 6 April 2020. The relief was renamed in Finance Act 2020, and these name changes do not affect the operation of the relief.
When the relief was first introduced there was a lifetime limit of £1 million for gains. This was then increased to £2 million from April 2010, to £5 million from June 2010 and to £10 million from April 2011. However, the limit was reduced to £1 million in March 2020.
The £1m lifetime limit means that individuals can qualify for the relief more than once, subject to an overriding total limit of £1m of qualifying capital gains. Please note that the changes to the lifetime limit are not retrospective.
Am I eligible for Business Asset Disposal Relief?
To qualify for Business Asset Disposal Relief, you will need to assess how much of your business you are selling or disposing of, if this includes shares and if this means the business stops becoming a trading company. Have a look below to see what your situation means in terms of your eligibility for the relief…
If you’re selling all or part of your business
Both of the following must apply for at least 2 years up to the date that you are selling your business:
- You’re a sole trader or business partner AND
- You’ve owned the business for at least 2 years
These same conditions also apply if you’re closing your business instead, and you must also dispose of all business assets within 3 years to ensure that you qualify for the relief.
If you’re selling shares or securities
Both of the following must apply for at least 2 years up to the date you sell your shares in order to qualify:
- You’re an employee or office holder of the company or one in the same group AND
- The company’s main activities are in trading or it’s the holding company of a trading group
Please be aware that there are also other rules that depend on whether or not the shares are from an Enterprise Management Incentive (EMI). You can find out more about EMI here.
If the company stops being a trading company
You are still able to qualify for relief if you sell your shares within 3 years, if the company does stop being a trading company.
If you’re selling assets you lent to the business
Both of the following must apply for eligibility:
- You’ve sold at least 5% of your part of a business partnership or your shares in a personal company AND
- You owned the assets but let your business partnership or personal company use them for at least one year up to the date you sold your business or shares (or the date the business closed).
If you’re a trustee you may also qualify selling assets held in the trust.
Unsure whether you qualify for the relief, or looking for financial advice when it comes to a sale of a business? Contact us and we can provide you with the most up-to-date information.