The Business Asset Disposal Relief Scheme, previously known as Entrepreneurs’ Relief between April 2003 to the 6th of April 2020, supports individuals by allowing them to reduce their Capital Gains Tax when selling all or part of their business assets.
The scheme allows business owners to pay a reduced tax rate of 10% on their gains on qualifying assets. The main benefit is saving money on Capital Gains Taxes, thus helping business owners invest more in their retirement or in their next business venture.
Following 3,600 searches for ‘Business Asset Disposal Relief’ in May 2023¹, we have delved into the most commonly asked questions about the scheme in order to create a guide with everything you need to know if you are considering selling specific assets, or your whole business, in 2023.
When does Business Asset Disposal Relief apply?
The scheme helps business owners by reducing their Capital Gains Tax – which is a tax applied on the profit you have gained from an asset that has increased in value since you bought it. If you are unsure, you can work out your ‘gain’ here. This also only applies if your gains are above the £6,000 tax-free threshold.
According to official guidance, to qualify for the relief, you must cover the following conditions:
- You’re a sole trader or business partner
- You’ve owned the business for at least two years
The scheme is not available for companies as a whole, and in the case of selling shares in a company, this would only apply to employees or directors who are looking to step away from their stake in it.
What business assets are eligible for the Business Asset Disposal Relief Scheme?
If individuals match the above criteria for the scheme, they could save on taxes when they sell one of the below business assets;
- The disposal of major physical assets (such as construction plant and machinery, IT and office equipment, cars and commercial vehicles, site accommodation, etc.), provided that the disposal represents a material part of the business that can be carried on in its own right
- The whole or partial sale of a sole trade or partnership business, including both the physical and intangible assets (such as operations, rights, intellectual properties or copyrights)
- Stocks and shares within a company
You can check here for more detail on the conditions for each asset type. Your accountant will also be able to help.
If you are selling assets that you personally own and have previously lent to the business, you must have sold at least 5% of your company shares, and the assets must have been used for up to a year before the date of sale.
If a business owner decides to close the business rather than sell it, they must claim the relief within three years of selling all assets.
How can I claim for the scheme?
The best way to claim Business Asset Disposal Relief is through your self-assessment tax return. Your accountant will be able to help with this.
You must add all the gains of any qualifying assets to determine the total amount eligible for tax relief. Then, you can deduct your tax-free allowance and pay just 10% tax on the remaining amount.
Please be aware there are deadlines to claim business relief, depending on the tax year when the business was closed or sold. For example, the deadline for businesses sold or closed in 2021-2022 is January 2024, so note this date in your diary to take full advantage of the scheme.
|Tax year when the business was sold or closed||Deadline to claim Business Asset Disposal Relief|
|2023 to 2024||31 January 2026|
|2022 to 2023||31 January 2025|
|2021 to 2022||31 January 2024|
What is the business asset disposal limit?
While there are no limits to the number of times individuals can claim through the Business Asset Disposal Relief Scheme, the total is capped at £1 million for each person (previously £10m until 11 March 2020).
Due to the current £1 million cap, you may find better alternative schemes that suit your situation, such as Investors’ Relief, Enterprise Investment Schemes, or Employee Ownership Trusts, which all apply in different situations and circumstances.
What are the main benefits of Business Asset Disposal Relief?
The scheme’s main benefit is allowing those selling business assets to save money on Capital Gains Taxes, which is especially important when retiring or buying into another investment for your company.
The scheme allows individuals to benefit from a reduced tax of 10% (compared to a 20% capital gains tax). This means that the maximum amount you can save is £100,000, which could be used to invest further into your current business by buying new machinery and equipment or bringing on new staff.
For business owners looking to retire in 2023, the scheme may be a great way to maximise your funds for retirement, whether you choose to sell part or all of your company.
How can I dispose of my physical business assets?
There are many ways to dispose of all or part of your business, and BPI can support you in finding the best solution for your business, including advising you on the best period of the year to sell certain assets.
Any qualifying physical assets from your business can be sold via our online auction platform for a quick and easy solution to translate your assets into cash. At BPI, our team can offer a bespoke asset disposal solution and an online auction platform to reach thousands of potential buyers.
Once you have sold your business assets, you can apply for business asset disposal relief (before the deadlines listed above), and this relief will reduce your capital gains tax for the qualifying assets in that same tax year.
If you are retiring or restructuring, we would recommend always seeking professional financial advice to gain support on maximising your return on asset disposal solutions. Our friendly team can help; contact us today!
SE Ranking search volume data for ‘Business Asset Disposal Relief’ in May 2023