What is Business Asset Disposal Relief?
(formerly Entrepreneurs Tax Relief)
When business owners sell or close their businesses, the assets are subject to Capital Gains Tax. Business Asset Disposal Relief reduces the rate of tax for qualifying businesses.
The disposal of shares in your business (whether a partial or full disposal) is subject to Capital Gains Tax. A ‘disposal’ of shares can take effect when you close your business or sell the shares. If you qualify for Business Asset Disposal Relief, that rate of tax is reduced to 10%.
Who qualifies for Business Asset Disposal Relief?
There are a number of criteria for qualification, including:
- The disposal of shares must have taken place within 2 years of the end of the current fiscal year. (So to claim by the 6th April 2020, the disposal must have taken place after 6th April 2018.)
- The company in question must have traded in the 24 months leading up to the date of the disposal of shares
- The shareholder disposing of the shares must be an officer or employee of the company, and all employment conditions must have been met for at least the 24 months before the share disposal
- The person disposing of shares must own at least 5% of the ordinary share capital of the company, which must entitle them to at least:
5% of the votes
5% of the company’s distributable profits
5% of the net assets on winding up
Where the company intends to cease trading and dissolve (such as through an MVL), the relief can still be claimed if:
- The distribution of any assets in the company is taxed as a capital distribution and not as income
- The distribution takes place within three years of when the company ceased trading
- The qualifying conditions above were met in the 24 months prior to the company ceasing to trade.
In March 2020, the Chancellor announced in the Budget that the lifetime allowance for Business Asset Disposal Relief would be reduced from £10m to £1m.
Visit the gov.uk website for more information on business asset disposal relief (formerly entrepreneurs tax relief).
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