Business Asset Disposal Relief - formerly known as ‘Entrepreneurs’ Relief’ reduces the amount of Capital Gains Tax payable when you dispose of (sell) shares in all or part of your business.
It results in a tax rate of 10% on the value of the disposal. There’s no limit to how many times you can claim and you can claim up to £1 million of relief during your lifetime (prior to 6th April 2020 the lifetime limit was £10 million). The same rules apply regardless of the rate of income tax you pay.
Who can claim Business Asset Disposal Relief?
There’s a qualifying period to claim Business Asset Disposal Relief, which means the share disposal needs to have happened within two years of the end of the relevant tax year.
You’ll also need to meet all of the following conditions:
- 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.
- The person disposing of the shares must also be an officer or employee of the company, and all employment conditions must have been met for at least the 24 months leading up to the disposal.
- The company must have traded in the 24 months leading up to the date of the share disposal.
Where the company intends to cease trading and dissolve, the relief can still be claimed provided:
- 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 (1, 2 and 3 above) were met in the 24 months prior to the company ceasing to trade.
Deadlines for claiming Business Asset Disposal Relief
To avoid missing the boat, you need to claim Business Asset Disposal Relief by the first anniversary of the 31st January following the tax year of the disposal of shares:
How to claim Entrepreneurs’ Relief
You can make a claim on your annual Self Assessment return in the supplementary ‘Capital Gains Summary’ section. However, seeking advice beforehand from an accountant is highly recommended. If you’re wanting information on how to value your business read our article “Six simple ways to value a business”.
Other Business Asset Disposal Relief rules apply if selling other assets (i.e. not shares). Please speak with your accountant for bespoke advice in this area.
As always, this article is only provided for general information, so for specific advice on your individual circumstances, please speak with your accountant.