Business asset disposal relief for sole traders

Produced by Tolley
Business asset disposal relief for sole traders

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

  • Business asset disposal relief for sole traders
  • Overview
  • Disposal of whole or part of a business
  • Disposal of part of a business
  • Admission of a partner
  • Disposal of separately identifiable part of a business
  • Disposal of business assets after cessation
  • Disposal of goodwill
  • Advance planning
  • Ceasing a business
  • More...

This guidance note discusses the application of business asset disposal relief (previously known as entrepreneurs’ relief) for sole traders only. See also the Conditions for business asset disposal relief guidance note. For further guidance, see Simon’s Taxes C3.1302C–C3.1303A.

Overview

To be eligible for business asset disposal relief, a disposal must be:

  1. a material disposal of business assets

  2. a disposal which is associated with a material disposal, or

  3. a disposal of trust business assets

TCGA 1992, s 169H

However, only the first option is applicable to sole traders. An associated disposal can only take place where there is a material disposal which consists of a disposal of an interest in a company or partnership, so the second option is not available. The third option requires that the business is owned by a trust. See the Business asset disposal relief (entrepreneurs’ relief) ― trusts guidance note.

For sole traders, there is a material disposal of business assets where the trader:

  1. disposes of whole or part of their business, or

  2. disposes of business assets on or after cessation

TCGA 1992, s 169I(2)

A disposal for these purposes is any kind of disposal that gives rise to a capital gain. Business asset disposal relief is not just available where the business is sold or assets of the business are sold after its cessation. A gain would also arise, for example, where the business, or part of it, is gifted to a connected person, or business assets are gifted following cessation of trade.

One key condition of business asset disposal relief is that the business must have been carried on for a specified amount of time up to the date of disposal or cessation of the business (whichever is applicable). Unlike some other reliefs, the individual cannot be deemed to have owned the business for periods where a spouse owned the business. Each individual must qualify in their own right.

For the sale of the business, or part of the business, to qualify as a material

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