Understanding business asset disposal relief is important for whenever the time comes that you decide to exit your business. It was previously known as entrepreneur’s relief before being rebranded business asset disposal relief in 2020.
Business asset disposal relief is a way for business owners to pay less capital gains tax (CGT) when selling all, or part, of their business. Selling an asset, such as shares in your company or your business, will incur CGT on any profit you make. When starting a business, shares are often given the nominal £1 value, so selling them many years later will hopefully generate a substantial sale price once your business is established and successful.
CGT is currently 20%. If you qualify for business asset disposal relief, this will drop to 10%. To qualify, typically you will need to have been a sole trader or business partner, and owned the business for at least two years up to the date of the sale. To claim business asset disposal relief, an additional section is required as part of your self-assessment tax return. There is currently a £1m lifetime allowance in place. If you surpass that amount, or you do not qualify for business asset disposal relief, then normal CGT rules will apply.
Your gain is predominantly the value you sell your business or shares for, less the value you paid for them. However, there may be some costs you can deduct from the transaction before calculating your final gain that is liable to CGT, or business asset disposal relief. An example of this could be a business valuation fee, or an advertising fee to market the sale of your business.
This article is designed as a brief introduction to the topic and everyone’s situation is always unique. If you have any questions or would like some advice on your own situation, please submit a message on the contact page and I will be happy to help.
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