Business Asset Disposal Relief on UK Company Shares

The UK Government has helped entrepreneurs flourish by offering Capital Gains Tax (CGT) reduction through Entrepreneurs Relief (ER). The same relief named as Business Asset Disposal Relief (BADR) after 6 April 2020.

However, the change in name does not affect the operation of the relief in itself. BADR applies to the sale of a business, shares in a trading company or an individual’s interest in a trading partnership.

Capital gains tax is due on the sale of assets (business, property etc.). With Entrepreneurs Relief (ER), disposal of assets up to the value of £10 million was taxed at 10%. Since April  2020, the asset sale ceiling has been reduced to £1 million and all sale proceeds over this figure are taxed at 20% or higher.

Where this relief is available CGT of 10% is payable in place of the standard rate. There are a number of qualifying conditions that must be met to qualify for the relief.

https://www.gov.uk/business-asset-disposal-relief

There are certain conditions which must be met for the disposal of shares in a company to be eligible for business asset disposal relief.

Have a look at our Capital Ganis Tax Services.

Throughout the period of two years ending with the date of disposal of the shares:

• the individual must have been an employee or officeholder in the company or any company within the group;
• the individual must own at least 5% of the company’s share capital; and
• the company must have been a trading company, or the holding company of a trading group. This means that any activities of a non-trading nature, such as holding investments, must not be substantial – understood to mean 20% of the company’s whole activities.

For an individual to satisfy the 5% shareholding condition they must own at least 5% of the ordinary share capital and by virtue of that holding the individual must be able to exercise at least 5% of the company’s voting rights.

In addition either:

• the individual must be beneficially entitled to at least 5% of the profits available for distribution to equity holders and to at least 5% of assets available for distribution to equity holders on a winding up; and/or
• in the event of a disposal of the whole of the ordinary share capital of the company, the individual would be beneficially entitled to at least 5% of the proceeds.

You can currently claim a total of £1 million in BADR over your lifetime. The £1m lifetime limit means you can qualify for the relief more than once. The lifetime limit may be higher if you sold assets before 11 March 2020.

Claims for BADR are made either through your Self-Assessment tax return or by filling in Section A of the Business Asset Disposal Relief help sheet. The deadline for claiming relief for the 2019-20 tax year is 31 January 2022.

If you are looking to know more about this relief, feel fee to book an appointment.