Business Asset Disposal Relief, previously known as Entrepreneurs' Relief, provides a significant tax advantage for business owners and shareholders contemplating selling their business or shares. By allowing a reduced Capital Gains Tax (CGT) rate of 10%, it offers a substantial saving compared to the standard rates of CGT, which can be as high as 20%.
Eligibility Criteria for Business Asset Disposal Relief
To qualify for Business Asset Disposal Relief, you must meet specific criteria:
- Ownership Type: Applicable to sole traders, limited Company Directors, or shareholders with at least a 5% stake in the business.
- EMI Scheme Shares: Eligible if shares were acquired through an Enterprise Management Incentive (EMI) scheme post 5 April 2013.
- Ownership Duration: The business or shares must have been owned for a minimum of two years before the sale.
- Post-Trading: If the business has ceased trading, you're still eligible if the shares are sold within three years of cessation.
- Trustees: Trustees selling assets may also qualify, though it's advisable to consult HMRC for eligibility confirmation.
How to Claim Business Asset Disposal Relief
Claiming the relief can be done through various methods:
- Self Assessment Tax Return: Include the relief claim in your annual tax return.
- Helpsheet: Complete Section A of the Entrepreneurs’ Relief helpsheet available from HMRC.
You're allowed to claim the relief multiple times, subject to a lifetime limit of £1 million in gains. This cap was revised from £10 million for disposals made before 11 March 2020.
Claiming Deadlines
Be mindful of the deadlines for claiming the relief, which align with the Self Assessment tax return deadlines:
- For the tax year ending 5th April (2021/22): Deadline is 31st January 2024.
- For previous tax years (2020/21 and 2019/20): Deadlines were 31st January 2023 and 31st January 2022, respectively.
Conclusion
Business Asset Disposal Relief offers a valuable opportunity for entrepreneurs to reduce their tax burden when divesting business assets. By understanding the eligibility requirements and claim process, business owners can better plan for the disposal of their business or shares. Given the complexity and potential financial implications, it's advisable to seek professional tax advice to ensure compliance and maximize the benefits of this relief.
