This section contains information on the qualifying conditions for claiming Business Asset Disposal Relief (known as the Entrepreneurs' Relief until 6th of April 2020).
We explain how to reduce the amount of Capital Gains Tax you would need to pay after selling or 'disposing of' a business (or part of it).
In simple terms, business disposals for tax purposes refer to the transfer of ownership of a qualifying asset to a buyer.
You could pay Capital Gains Tax (CGT) at 10% on the gains of assets that qualify for Business Asset Disposal Relief (BADR).
The qualifying conditions for the reduced rate of BADR Capital Gains relate to the sale or 'disposal' of:
Note: A trustee of settlements selling assets held in the trust may also qualify for HM Revenue and Customs Business Asset Disposal Relief.
The same eligibility criteria also applies when closing down a business instead. In this case, you would need to dispose of the business assets within three (3) years to qualify for Business Asset Disposal Relief.
There are two main conditions to follow if you intend to sell your shares in the company. Both must apply for at least two (2) years before selling the shares:
Note: The Capital Gains Tax guide explains more about how taxation on the profits realised after selling an asset works in Great Britain and Northern Ireland.
The rules on Business Asset Disposal Relief change if the shares are from an Enterprise Management Incentive (EMI). In this case, you would need to (both):
Note: Another section contains more information about Tax and Employee Share Schemes, including Enterprise Management Incentives (EMIs).
The business would need to be a 'personal company' for a minimum of two (2) years before selling the shares if they are not from an EMI. Thus, you would have a minimum of 5% of the shares and voting rights.
Furthermore, you would also need to have entitlement to at least 5% of (either):
In some cases, you can still claim Business Asset Disposal Relief if the number of shares you hold drops below the 5% minimum (e.g. if the company issues more shares).
You would either need to choose or be 'elected' as having sold and re-bought the shares immediately before the issuance of the new shares. Doing so would create a gain that would qualify for claiming Business Asset Disposal Relief.
What if you choose or 'elect' to postpone paying tax on that gain (e.g. until you sell the shares)? If so, you would need to (either):
Note: You may also qualify for BADR relief after selling the shares within three (3) years if the business ceases to operate as a trading company.
Both of these two condition must be met when selling assets that you lent to the business:
The method that you use to work out your tax will depend on whether all the gains are eligible for Business Asset Disposal Relief.
Note: If you have other gains, the tax you pay on those will depend on what Income Tax rates you pay - and when you made the gain.
Higher rate Income Tax payers will pay 28% tax on gains made before the 6th of April 2016 that are not eligible for Entrepreneurs' Relief.
On the gains made from the 6th of April 2016 that do not qualify for Business Asset Disposal Relief, you should expect to pay:
You can use the tax-free allowance against gains that would get charged at the highest rates (e.g. where the rate would be 28% tax).
Basic rate taxpayers can use these steps to work out the tax rate that you can expect to pay on gains if they do not qualify for Business Asset Disposal Relief.
Important: You can either contact HM Revenue and Customs or seek professional help from a tax adviser (e.g. an accountant).
There is a set process for claiming Business Asset Disposal Relief on a tax return. Most people will claim Business Asset Disposal Relief on Self Assessment tax returns.
You can also use Section A on the 'Business Asset Disposal Relief: HS275 Self Assessment helpsheet' (i.e. current version).
|Tax Year of Selling or Closing a Business||Deadline to Claim Business Asset Disposal Relief|
|Between the 6th of April 2020 to the 5th of April 2021||31st of January 2023|
|Between the 6th of April 2019 to the 5th of April 2020||31st of January 2022|
|Between the 6th of April 2018 to the 5th of April 2019||31st of January 2021|
Note: There is no limit on how many times you can claim for Business Asset Disposal Relief. But, the maximum amount of relief you can claim during a lifetime is £1 million (unless the assets were bought before 11th of March 2020).
Note: This short video explains some of the benefits of using BADR to avoid paying Capital Gains Tax - not evade it!
How to Claim Business Asset Disposal Relief in United Kingdom