Business Asset Disposal Relief

What the relief does

Business Asset Disposal Relief can reduce the Capital Gains Tax on the gain you make when you dispose of all or part of your business. A disposal includes selling it, giving it away and closing it down and selling the assets. It was previously called Entrepreneurs' Relief.

The relief does not reduce the gain. It taxes qualifying gains at a fixed relief rate, up to a lifetime limit on everything you have ever claimed it on. Gains above the limit are taxed at the normal Capital Gains Tax rates. The rate that applies depends on the date of the disposal. For an unconditional contract, that is the date you exchange contracts, not the date you complete.

Who it saves tax for

At current rates, the relief rate is the same as the lower rate of Capital Gains Tax. So the relief only saves you tax on qualifying gains that would otherwise be taxed at the higher rate: in practice, gains that take your taxable income and gains above the basic rate band. If your gains would all fall within your basic rate band, claiming it does not lower your tax. Check the rates below against your own position before you rely on it.

Check whether you qualify

You must meet the conditions throughout the 2 years up to the date of the disposal. The conditions depend on what you are disposing of.

Your business as a sole trader or partner

You qualify if you owned the business, or your share of the partnership, for at least 2 years and you sell all or part of it. If you close the business instead, the assets you used in it qualify if you sell them within 3 years of stopping trading. Selling a single asset while the business carries on does not qualify on its own.

Shares in your own company

The company must be your personal company, and a trading company or the holding company of a trading group. You must be an officer or an employee of it. A company with substantial non-trading activities, such as letting property or holding investments, may not count as a trading company. If the company has stopped trading, you can still qualify if you sell the shares within 3 years of the date it stopped.

An asset you own personally and let the business use

A building or piece of equipment you own and let your partnership or company use can qualify as an associated disposal. You must sell it as part of withdrawing from the business, alongside a disposal of at least 5% of the shares or of the partnership.

Work out the gain and the tax

Work out the gain in the normal way: what you received, minus what the business or the shares cost you and any allowable costs of buying, improving and selling them. You can set your losses and your Capital Gains Tax annual exempt amount against your gains in the way that saves you most tax, so set them first against any gains taxed at the higher rate. The qualifying gain is taxed at the Business Asset Disposal Relief rate until your lifetime limit is used up.

If you sell in stages, or have claimed the relief (or Entrepreneurs' Relief) before, keep a running total. Every earlier claim counts against the same lifetime limit.

If you sell to an Employee Ownership Trust

If you sell a controlling interest in your company to an Employee Ownership Trust, you can claim Employee Ownership Trust relief instead. You cannot claim both on the same shares. Work out which gives the better result before you commit to either.