Paying just 10% tax on gains when you sell your business

A long standing relief, which has changed names over the last 25 years, but with Business Asset Disposal Relief you will pay tax at 10% on gains on qualifying assets when you sell your business up to the lifetime limit of £1m.

A little history

The 1997 Blair/Brown New Labour Government launched Business Asset Taper Relief to encourage business owners to be entrepreneurial, grow businesses for the benefit of the UK economy with the reward, in part, being a low rate of tax when they ultimately sold their businesses.  

A great idea that worked really well, so well in fact that in 2008 they decided to withdraw it as part of a tax simplification package. This led to a huge rush to sell businesses and complete before 31 March 2008. It all backfired and a few months later the government was forced to backtrack with the introduction of Entrepreneur’s Relief. 

Entrepreneur’s Relief 

Entrepreneurs’ relief was introduced to take effect from the 2008/09 tax year and was again primarily an incentive for people to establish businesses in the UK by reducing the rate of Capital Gains Tax on business disposal. The rules have varied over the years, but an effective 10% tax rate on gains has remained, although the limits on the gains have changed widely. 

Business Asset Disposal Relief 

With effect from 6 April 2020 Entrepreneur’s Relief was renamed Business Asset Disposal Relief. It does what it says on the tin, but the removal of the “entrepreneur” tag is perhaps telling about the then Johnson government’s approach in this post Brexit UK economy. 

With Business Asset Disposal Relief, you may be able to pay less Capital Gains Tax when you sell or dispose of all or part of your business and it means, you’ll pay tax at 10% on all gains on qualifying assets when selling all or part of your business. 

Sole trader or partnership 

You need to be a sole trader or business partner and have owned the business for at least 2 years. If you’re closing your business instead, you must also dispose of your business assets within 3 years to qualify for the relief. 

Limited company 

If you’re selling shares in a company, both of the following must apply for at least 2 years up to the date you sell your shares: You must be an employee or office holder (director) of the company (or one in the same group) and the company must be a trading company, or the holding company of a trading group. 

The 5% rule 

The business must be a ‘personal company’, which means that you have at least 5% of both the shares and voting rights, and you must also be entitled to at least 5% of either profits available for distribution and assets on winding up the company or disposal proceeds if the company is sold. 

There are also other similar rules depending on whether or not the shares are from an Enterprise Management Incentive (EMI) or if you’re selling assets you lent to the business. 

Lifetime limits on claims 

There’s no limit to how many times you can claim Business Asset Disposal Relief and you can claim a total of £1 million in Business Asset Disposal Relief over your lifetime. You may be able to claim more if you sold your assets before 11 March 2020, where the lifetime limits under Entrepreneur’s Relief were at times much higher. 

If you are thinking of selling all or part of your business, please check your eligibility by contacting Brian Jukes, Brian King or Karen Keeling.