Business Asset Disposal Relief means you’ll pay tax at 10% on all gains on qualifying assets.
Business Asset Disposal Relief was known as Entrepreneurs’ Relief before 6 April 2020.
If you’re selling all or part of your business
To qualify for relief, both of the following must apply for at least 2 years up to the date you sell your business:
- you’re a sole trader or business partner
- you’ve owned the business for at least 2 years
The same conditions apply if you’re closing your business instead. You must also dispose of your business assets within 3 years to qualify for relief.
If you’re selling shares or securities
To qualify, both of the following must apply for at least 2 years up to the date you sell your shares:
- you’re an employee or office holder of the company (or one in the same group)
- the company’s main activities are in trading (rather than non-trading activities like investment) - or it’s the holding company of a trading group
There are also other rules depending on whether or not the shares are from an Enterprise Management Incentive (EMI).
If the shares are from an EMI
You must have both:
- bought the shares after 5 April 2013
- been given the option to buy them at least 2 years before selling them
If the shares are not from an EMI
For at least 2 years before you sell your shares, the business must be a ‘personal company’. This means that you have at least 5% of both the:
- voting rights
You must also be entitled to at least 5% of either:
- profits that are available for distribution and assets on winding up the company
- disposal proceeds if the company is sold
If the number of shares you hold falls below 5% because the company has issued more shares, you may still be able to claim Business Asset Disposal Relief.
You need to choose or ‘elect’ to be treated as if you had sold and re-bought your shares immediately before the new shares were issued. This will create a gain on which you can claim Business Asset Disposal Relief.
You can also choose or ‘elect’ to postpone paying tax on that gain until you come to sell your shares.
You can do this by:
- completing the additional information section of the Capital Gains summary form of your tax return
- writing to HMRC if you do not have to complete a tax return for the year
If the company stops being a trading company
If the company stops being a trading company, you can still qualify for relief if you sell your shares within 3 years.
If you’re selling assets you lent to the business
To qualify, both of the following must apply:
- you’ve sold at least 5% of your part of a business partnership or your shares in a personal company
- you owned the assets but let your business partnership or personal company use them for at least one year up to the date you sold your business or shares - or the date the business closed
If you’re a trustee
You may also qualify if you’re a trustee selling assets held in the trust.