Maximising business asset disposal relief

Produced by Tolley
Maximising business asset disposal relief

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

  • Maximising business asset disposal relief
  • Spouses’ shares
  • Jointly owned assets
  • Family members
  • Assets disposed of within three years of cessation
  • Associated disposals ― rent for use of assets
  • Shares acquired from share option schemes

This guidance note considers some practical and planning points relating to business asset disposal relief (BADR), previously known as entrepreneurs’ relief. For guidance on the calculation of and qualifying conditions for BADR, see the Conditions for business assets disposal relief guidance note.

As this note considers planning, the conditions for BADR are considered to be those that are in place after 5 April 2019, which accounts for the changes made by FA 2019, s 39 and Sch 16.

Spouses’ shares

Spouses and civil partners (hereafter ‘spouse’) are often involved in the running and ownership of owner-managed businesses. This offers a number of benefits with regards to tax planning, in particular making the use of two individuals’ entitlement to allowances and entitlement to reliefs which have a limit for each individual. BADR is such a relief, with each individual subject to a lifetime limit of £1m of capital gains (for disposals prior to 11 March 2020, the limit was £10m). Where spouses jointly own a business, this enables them to utilise the remainder of both of their lifetime limits in respect of any disposal.

Where a business owner has not involved their spouse in the ownership of the business, it is recommended that they should be made aware of potential tax efficiencies in doing so.

However, it is important to remember that tax considerations will most likely not be the most important factor in such a decision. The ownership of a company may well represent a significant personal and commercial decision. Once family members have become business associates, personal matters may easily have commercial implications, and vice versa. The minimum holding requirement of two years is not insignificant.

Even where tax is a key consideration, BADR will not often represent the greatest potential saving to the business owners. Bear in mind that for one individual to exceed their BADR lifetime limit, they will need to have chargeable gains in excess of £1m. Where this is not a realistic possibility, any planning

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