Business asset disposal relief checklist

When you sell or transfer all or part of your business you might be entitled to claim business asset disposal relief in respect of any capital gain you make. This means that the maximum rate of tax that will apply will be 10%. However, to qualify there are conditions that you and your business must meet.

When is relief available?

Business asset disposal relief (BADR) (called entrepreneurs’ relief (ER) before 6 April 2020) is available for qualifying business disposals. The relief imposes a lower rate of capital gains tax (10%) than the top standard rate of 18%, and is subject to a lifetime limit of £1 million for gains from 6 April 2020 (previously £10 million). The relief applies to disposals of a business, but can also apply to disposals of assets which are associated with your withdrawal from a business. For example, if you own a warehouse that your partnership uses and you leave the partnership, BADR might apply if you sold the warehouse to the other partners.

Conditions

BADR is only available where there is a qualifying disposal of business assets, which includes selling all (or a part, if that part can operate as a business in its own right) of them, or selling shares in your personal company. While it sounds simple, the number of conditions in the legislation can often mean BADR won’t apply. The 2018 Budget tightened the rules further. Use our checklist ahead of a disposal. It won’t guarantee you BADR, but it can help you avoid missing out for want of taking a few simple steps.

Using the checklist

The checklist contains a number of questions designed to be answered “Yes”, “No” or “Not applicable”. If you are considering selling your business or shares, run through the list. If you answer “No” to any of the questions, BADR won’t apply and you should try to rectify the issue before the sale.

Example. Acom Ltd has five shareholders. One shareholder, John, was only recently made a director and bought in with a 10% shareholding. Acom has been approached by a competitor with an offer to buy all of the shares, which the members have voted to accept. By using the checklist it becomes apparent that John’s gain will not qualify for BADR as he will have only held his shares for eleven months prior to the proposed sale date. To help John the company could negotiate the sale of his shares a month later than the main sale to ensure he will qualify for BADR.