The quick answer
Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) is a Capital Gains Tax relief that means you only pay 10% Capital Gains Tax on the first £1m of gains on the sale of qualifying business assets.
This can include share sales, buy backs or distributions of reserves via a Members Voluntary Liquidation. You need a Licensed Insolvency Practitioner like us to do a solvent liquidation.
In more detail
HOW TO QUALIFY FOR BUSINESS ASSET DISPOSAL RELIEF
Capital gains are taxed at either 28% or 20% if you are a higher rate taxpayer, 18% if you are a basic rate taxpayer or 10% if the gain meets certain qualifying conditions and qualifies for Business Asset Disposal Relief.
The tax conditions to qualify are as follows:
- The assets must have been trading assets.
- If they are shares in a limited company it must have been a trading limited company.
- It must have been trading within the last three years (so be careful of leaving a company dormant for three years).
- For a limited company, you must have owned 5% of the ordinary voting shares.
- There is a lifetime limit of £1 million on capital gains. Above that level in a lifetime the tax rate will revert to 20%. This is often the level considered for emigration to avoid Capital Gains Tax.
- Some trades do not qualify; for example property-owning and letting in a limited company does not usually qualify as trading so careful advice needs to be taken beforehand from a suitably qualified professional.
- For companies with assets below £25,000 in reserves, Extra Statutory Concession C16 can be used. This is an informal type of liquidation where you do not need to use a Licensed Insolvency Practitioner and can deal with the distribution and closure of a company by yourself.
You should always take professional advice before starting a member’s voluntary liquidation and it is normal as well to ask for tax clearance from HM Revenue and Customs on any larger or more complex transactions. You can view the latest guidance from HMRC to keep up with any updates as they happen.