Business Asset Disposal Relief
Business Asset Disposal Relief / formerly Entrepreneurs Relief
Business Asset Disposal Relief – formerly known as Entrepreneurs Relief – is a scheme designed to oversee the sale of your business, whether in full or in part. It’s a capital gains tax relief. You’ll be eligible for this scheme if you are a business partner or have been operating as a sole trader with a business that has been running for at least two years.
It’s worth noting that the sale of shares under this scheme has additional requirements. Your company will need to be a trading company with an employee or officer to qualify for selling shares. If you need the necessary criteria, the rate of tax that you’ll pay on the sale is 10%. This figure is significantly lower than the higher marginal tax rate, which can hit as high as 45%.
What is Business Asset Disposal Relief?
The Business Asset Disposal Relief operates as an incentive to encourage people to take the risk of starting their own business. In practical terms, it means that you’ll pay less in capital gains tax when selling – or ‘disposing of’ – part or all of your business. This incentive is designed to encourage you to drive your business ahead in a way that makes it as valuable as possible.
It’s ideal for those who want the option of building a business with the option of selling it in the future for the highest profit margin and lowest taxes concerning the sale. At FD Capital Recruitment, we can help you sell your business to ensure that you can take advantage of the tax relief offered by the Business Asset Disposal Relief.
Who qualifies for Business Asset Disposal Relief?
Business Asset Disposal Relief is available for those who are disposing of part or all their personal businesses or the interest they hold in a partnership. This scheme also covers employees and directors who are selling their shares in the companies they work for. Trustees can also benefit from this tax relief scheme in certain circumstances. You might be interested in: The Enterprise Management Incentive / EMI Scheme.
It’s worth noting that corporate bodies are not eligible for tax relief under Business Asset Disposal Relief. Whatever category you fall into, you can claim your tax relief through your self-assessment form tax return or by contacting HMRC directly.
The relief offered through Business Asset Disposal Relief is subject to a lifetime limit of £1 million with a maximum potential capital gains tax saving of £100,000.
The sale of shares or the entirety of your business may qualify you for the tax relief under the following circumstances:
Selling shares acquired through an EMI Scheme
Business Asset Disposal Relief can interact with the Enterprise Management Incentive (EMI) Scheme. If you are planning to sell shares and benefit from the lower capital gains tax through the Business Asset Disposal Relief scheme, you’ll have to meet two requirements.
You’ll need to have bought the shares at a time after 5th April 2013 and at least two years must have passed since when you were given the option to buy them and when you decide to sell them.
Selling shares not acquired under the EMI Scheme
For at least 2 years before the sale of your shares, your business must be a ‘personal company’. These requirements mean that you should hold a minimum of 5% of the shares and voting rights.
You’ll also have to be entitled to a minimum of 5% of either the profits when they are available for distribution or assets available on the sale of the company. Alternatively, you would be entitled to 5% of the disposal proceeds made if the company is sold.
You may still be able to claim under the ‘Business Asset Disposal Relief’ Scheme if your portion of shares fall under 5% if more shares are issued. For this to work, you’ll have to elect for the company to treat you as if you have sold and re-purchased your shares in the immediate time frame before the new shares involved were issued. This process would create a gain, for which you can claim the Business Asset Disposal Relief scheme.
Alternatively, you can the option to elect to postpone paying the tax on the gain made until the time when you sell your shares in the company. You will be able to do this relatively easily in your tax return. You’ll complete the additional information section found in the Capital Gains summary section. If you’re not completing a tax return, you can contact HMRC directly in writing with this information.
Claiming Business Asset Disposal Relief if your company has stopped trading
You can still qualify for support under the Business Assets Disposal Relief scheme if you sell your shares within 3 years of the company stopping trading.
Selling assets that you’ve lent to the business
You can also qualify for Business Asset Disposal Relief when selling assets that you have lent to the business. You’ll have to meet the following requirements to qualify:
- At least 5% of your part of the business partnership has been sold or your shares in a personal company.
- The assets were owned by you, but you lent them to your business partnership or personal company for them to use for at least a year – up until the time you sold your shares or the date that the business ceased trading and closed.
If you’re a trustee of the business
You may also qualify for Business Asset Disposal Relief if you’re a trustee of the business and selling assets that were held in a trust.
Are you not sure where to start with Business Asset Disposal Relief? FD Capital Recruitment is here to help. Our talented team of financial professionals will help you prepare your business for its sale to ensure that you benefit from the tax relief offered by the Business Asset Disposal Relief scheme.
If you’re thinking of selling your personal company or your shares in a partnership, our FDs and CFOs are on hand to advise you on how to get the best return for your investment.
Call us today for a no-obligation consultation on 020 3287 9501
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Adrian Lawrence FCA with over 25 years of experience as a finance leader and a Chartered Accountant, BSc graduate from Queen Mary College, University of London.
I help my clients achieve their growth and success goals by delivering value and results in areas such as Financial Modelling, Finance Raising, M&A, Due Diligence, cash flow management, and reporting. I am passionate about supporting SMEs and entrepreneurs with reliable and professional Chief Financial Officer or Finance Director services.
