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Business Asset Disposal Relief (formerly known as Entrepreneurs’ Relief) is a tax relief offered by HM Revenue and Customs (HMRC) in the United Kingdom. The relief is designed to reduce the amount of Capital Gains Tax (CGT) payable when disposing of qualifying business assets, typically when an individual sells or liquidates their business. It allows eligible individuals to pay a reduced CGT rate of 10% on qualifying gains up to a lifetime limit of £1 million. To be eligible for Business Asset Disposal Relief, certain conditions must be met. According to HMRC guidance, these conditions include:
- Qualifying disposal: You must dispose of qualifying business assets, including shares in a trading company or the assets of a trading business.
- Trading company or holding company: The company must be a trading company or the holding company of a trading group. A trading company is a company whose primary activities are trading (i.e., buying and selling goods or services) instead of non-trading activities like investment. A holding company must have at least one trading subsidiary.
- Personal company: The company must be the individual’s personal company. This means that the individual must:
- a. hold at least 5% of the ordinary share capital, b. be able to exercise at least 5% of the voting rights associated with that share capital, and c. be an officer or employee of the company (or one of its group members if it’s a holding company).
- Minimum qualifying period: The individual must have met the personal company conditions and the trading company/holding company conditions for a continuous period of at least 24 months (two years) before the date of the disposal of the shares or assets.
- Disposal of the whole or part of the business: If you’re disposing of assets instead of shares, you must be selling or disposing of the whole or part of your business. The business must have used the assets up to the date it ceased trading or the date of the disposal.
Please note that these conditions are subject to change, and additional requirements may vary depending on your situation. Therefore, consulting with a tax professional or legal expert is crucial to ensure you meet the eligibility requirements for Business Asset Disposal Relief. You can call our office to discuss your circumstances with one of our specialist tax advisors.