Business Asset Disposal Relief, formerly known as Entrepreneur’s Relief, is one of the most critical tax relief options for business owners in the UK. Relevant to those considering selling their business or assets in 2024, Business Asset Disposal Relief can significantly reduce the tax liabilities of the disposal of assets that occur in these circumstances. Understanding what qualifies for Business Asset Disposal Relief is therefore crucial for those who may find themselves making decisions about their business in the near future. This article outlines what qualifies for the relief alongside the next steps for those eligible.
What Is Business Asset Disposal Relief?
Business Asset Disposal Relief is a tax relief scheme designed to reduce the rate of Capital Gains Tax charged on the disposal of certain business assets. In most cases, capital gains are taxed at a minimum of 20%. However, Business Asset Disposal Relief reduces the rate to 10% on qualifying gains up to a lifetime limit of £1 million.
Business Asset Disposal Relief is therefore incredibly beneficial for those selling all or part of their business and/or assets, as it allows them to maximise the value they can extract from their business.
Business Asset Disposal Relief Eligibility
Business Asset Disposal Relief can apply to both shares and physical assets. To qualify in 2024, a number of eligibility criteria must be met which include:
- You must hold at least 5% of the company’s shares and voting rights.
- You must have owned the business or shares for at least two years before the sale.
- The company or business must be actively trading, not merely holding investments.
Full details of exactly what qualifies for Business Asset Disposal Relief and the Business Asset Disposal Relief limit is available on the relevant government page.
How To Access Business Asset Disposal Relief
In most circumstances, Business Asset Disposal Relief is relevant when business owners are closing down their business and wish to extract funds in the most tax-efficient way possible. A Members’ Voluntary Liquidation (MVL) is typically the most appropriate way to achieve this as it involves liquidating the company’s assets and distributing the proceeds to shareholders in situations where a solvent business has reached the end of its useful life or owners are retiring.
Business Asset Disposal Relief can be accessed through an MVL in the following way
- If the company meets the eligibility criteria for Business Asset Disposal Relief, a licensed insolvency practitioner should be appointed to undertake the MVL. This professional will handle the process of liquidating assets and distributing the proceeds before removing the company from the Companies House Register.
- When assets are distributed, they can be treated as capital gains providing all conditions of Business Asset Disposal Relief are met.
- Once the assets have been distributed, Business Asset Disposal Relief can then be claimed on the capital gains, allowing business owners to benefit from the reduced 10% rate.
Can Business Asset Disposal Relief Eligibility Change?
Like all tax relief schemes, Business Asset Disposal Relief can be subject to changes as per government policy. As of August 2024, there have been no formal announcements concerning the removal or reform of this tax relief; however, there is much speculation about what the upcoming Autumn Budget will mean for those wishing to benefit from a reduction in Capital Gains Tax as per the relief.
If you are eligible for Business Asset Disposal Relief under current rules and keen to make the most of the tax relief available to you, it is therefore crucial to stay informed about any updates that could impact your eligibility or the benefits of the relief as the Autumn Budget approaches.
Next Steps For Eligible Businesses
If you believe that you qualify for Business Asset Disposal Relief and wish to extract your hard-earned funds from your business, it’s vital that you seek prompt and professional advice. At Ballard Business Recovery, our team of experts is on hand to help you confirm whether you meet the requirements of the relief and embark on the process of extracting funds via an MVL.
Get in touch with us to discuss your circumstances and find out how we can help. By speaking with us straight away, you can have greater confidence that you will be able to benefit from Business Asset Disposal Relief before any possible changes to government policy.
