Conditions for business asset disposal relief

Produced by Tolley

The following Owner-Managed Businesses guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Conditions for business asset disposal relief
  • Disposals qualifying for business asset disposal relief
  • Material disposals of business assets
  • What is a ‘disposal of business assets’?
  • What is a ‘material disposal’?
  • Associated disposals
  • Condition A ― material disposal requirement
  • Condition B ― withdrawal from the business
  • Condition C ― minimum period of use in the business
  • Condition D ― minimum period of ownership
  • More...

Conditions for business asset disposal relief

Business asset disposal relief (BADR), which was previously known as entrepreneurs’ relief, is a capital gains tax (CGT) relief that allows business owners with chargeable gains on qualifying business assets to pay CGT at a rate of 10%. For disposals made on or after 11 March 2020, the relief is available on up to £1m of capital gains for each individual over their lifetime; prior to 11 March 2020, the lifetime limit was £10m. This reduction in the lifetime limit was in FA 2020 and is detailed further below.

Relief is available on gains arising to sole traders, partners, shareholders and trusts; it is not available for companies. The relief also applies to gifts and non-arm’s-length sales.

This guidance note sets out the main qualifying conditions for BADR, how the relief is calculated and claimed, and details on associated disposals.

HMRC guidance is set out at CG63950P and the relevant legislation can be found in TCGA 1992, ss 169H–169SH.

Disposals qualifying for business asset disposal relief

BADR applies to qualifying business disposals which fall into three main categories:

  1. material disposal of business assets ― this is the main type of disposal which will attract BADR. It applies to individuals who trade through a company, as a sole trader or in a partnership. Relief will be available if part or the whole of the business is sold and the relief is modified when the business has ceased trading

  2. disposal of trust business assets where business assets are held by the trustees of a settlement. More details can be found in the Business asset disposal relief (entrepreneurs’ relief) ― trusts guidance note, or

  3. associated disposals which relate to disposals of assets used in the trade but owned personally. BADR will apply if the asset is disposed of as part of the individual disposing of their interest in the business

TCGA 1992, s 169H(2)

Whilst the three types of qualifying disposal for BADR all refer to disposals of business

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