Business Asset Disposal Relief – Complete Guide

Business Asset Disposal Relief Complete Guide

There are a variety of terms involved in business, and it is outstanding not to know about all of them. There is a term called “Business asset disposal relief,” which raises plenty of doubts among the people. If you are also unaware of the factors related to business asset disposal relief and want to understand what it means, then in this article.

We have created a complete guide to read and understand everything you need to know about this aspect of the business.

What Is Business Asset Disposal Relief?

What Is Business Asset Disposal Relief

Business asset disposal relief refers to the people who dispose of a specific part of their assets getting tax relief. It applies to the selling of the whole or a part of assets. In this situation, you pay fewer capital gains taxes whenever you dispose of your assets. Earlier business asset disposal relief was known as entrepreneur’s relief, and it applied to the capital gains of  £10 million.

From March 2020 onwards, it was limited to £1 million. As per new guidelines, if you have claimed the entrepreneur’s relief, you won’t qualify for the relief on future asset disposal. Suppose you are thinking of wrapping up with your company due to retirement or off-payroll rules. In that case, business asset disposal relief can be an excellent option for you because your business is valuable. You can get a discount on capital gains to get more profit from your company.

Who is Eligible For Business Asset Disposal Relief?

Who is Eligible For Business Asset Disposal Relief

The business asset disposal release is eligible for the individuals selling their entire or a part of their business on the following basis:

  • You must be the only business partner two years before selling the assets of the business.
  •  You must own the business for a minimum time of 2 years.

These two conditions are necessary for you to sell your business assets and the same conditions apply if, instead of selling, you are closing the business.

Another thing that you must remember is that to gain the benefits of business asset relief, you should dispose of the assets within three years.

Eligibility if You’re Selling the Shares or Securities

If you are selling the shares of the securities under business asset disposal relief, you must fulfill the following conditions to qualify for the particular situation.

  • You must be an employee or an office holder of the company.
  • The company should be involved majorly in the investment sector.
  • Eligibility For Selling The Assets That You Lent To The Company

To be eligible for business asset disposal relief, you must have sold a minimum of 5% of your shares in a business partnership or a part of the partnership in a company.

Technically, you own the business assets, but you have allowed the company to use your acids for a minimum of one year until you have decided to sell the shares or before the company’s closing.

How Does Business Asset Disposal Relief Works?

To understand the working of small business asset disposal relief, let’s take an example. Suppose you are closing down your company, and after settling your debts and liabilities, you are left with £140,000 in your business account. Now you have plenty of equipment in your business, and after selling them, you get an additional £120,000 that makes the total profit of £260,000.

You get early tax-free capital gains known as the annual exempt amount of £12,300 per year in tax. If you don’t have business asset disposal relief, you would have to pay the capital gain tax on the rest of the amount per the tax bracket. Suppose you have an amount of £237,700 put in a higher tax bracket that will lead you to pay 20% of the capital gain tax. And if the residential property is included in the business tax, it will become 28% of the profit.

In another scenario, if you have decided to sell a part of your business and the profit you have gained falls under the primary income tax raid, you would have to pay 10% of your property. With the residential property, it will become 18%. This is the benefit that you get with business asset disposal relief, even if you pay the entire property at a lower price or a half of it. This gives you a significant saving on your profit. The business asset disposal relief reduces the capital gains tax to half of whatever you have to pay, leaving the extra amount in your pocket.

How Can You Claim Business Asset Disposal Relief?

How Can You Claim Business Asset Disposal Relief

There are prominently two ways through which you can claim business asset disposal relief:

  • The first one is your self-assessment tax return for the year you have decided to close or sell your business.
  •  The second one is by filling out a form of the business asset disposal relief helpsheet.

 You can claim the business asset disposal relief claim as many times as you want, but the condition is that your total profit should not exceed £1 million in your lifetime. If your profit cap is more than this, you won’t be eligible for the claim.

Summing It Up

Business asset disposal relief is a great way to help business owners get a part of their profit better. In 2019 the government decided to scrap this disposal and relief but instead, they reduced it by 90%. It is believed that there will be some changes in the rules and regulations in the business asset disposal relief in the future.

Therefore it would be better to sell or close your business if you are thinking of doing it anytime soon to take advantage of the capital gains. We hope this article was informative for you. If you want to know more about it, you can talk to an accountant who can tell you about the business asset disposal relief more detailedly.