Conditions for business asset disposal relief

Produced by Tolley
Conditions for business asset disposal relief

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’?
  • Disposal associated with a relevant material disposal
  • Specific conditions for certain types of disposal
  • Conditions applying to all associated disposals
  • Restriction of relief on associated disposals
  • Amount of business asset disposal relief available
  • More...

Business asset disposal relief (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 applies to all disposals, so includes gifts and non-arm’s-length sales. It is also possible to create a deemed disposal for business asset disposal relief in certain circumstances.

Disposals qualifying for business asset disposal relief

For an individual to claim business asset disposal relief, there must be a:

  1. ‘material disposal of business assets’

  2. ‘disposal of trust business assets’, or

  3. ‘disposal associated with a relevant material disposal’

TCGA 1992, s 169H(2)

Whilst the three types of qualifying disposal for business asset disposal relief all refer to disposals of business assets, the qualifying assets are different in each case. It is important from the beginning to categorise what type of disposal has been made and focus on the criteria for each.

Where the criteria for each disposal type are not met, business asset disposal relief cannot be claimed. A disposal of business assets is, in itself, not sufficient.

Where a qualifying business disposal is not of shares in or securities of a company (ie disposals by sole traders and partners, disposals of trust business assets, and associated disposals), business asset disposal relief is given only in respect of the disposal of relevant business assets comprised in the qualifying business disposal. Relevant business assets are generally assets used for the business which are not shares, securities or any other assets held as investments.

A material disposal may also occur without a disposal of shares. This

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