ER is a capital gains tax (CGT) relief available not just to company shareholders, but to owners of unincorporated businesses. In recent years, the relief has been the go-to option for someone looking to dispose of all, or part of, a business and extract a capital sum.
ER applies to gains on disposals of shares, or securities in a trading company, and gives access to a 10% rate of CGT, rather than 20%. In some circumstances, it can be used for disposals of assets such as land and buildings that are used by a company but owned by an individual. ER can also reduce CGT paid on disposals of qualifying shares from an Enterprise Management Incentive scheme. It has been subject to a lifetime limit, which previously stood at £10 million.
As well as a change in name to Business Asset Disposal Relief (BADR), the Budget 2020 brought a new lower lifetime limit of £1 million. This came into force with immediate effect, applying to qualifying disposals made on or after 11 March 2020 (the day of the Budget).
The value of relief claimed for qualifying gains in the past will contribute to the new lifetime limit, and this will now need to be taken into account when assessing eligibility for any future claim. The new limit can also apply where a business ceased trading before 11 March 2020; or the gain is a deferred gain that accrues on a chargeable event on or after 11 March 2020.
Despite the change, the relief remains a vital part of an exit strategy for business owners.
In the current volatile economy, it may be of particular relevance to those reshaping their plans for the future.
The availability of BADR is not straightforward and, as with many areas of business, advance planning is key. At Clayton & Brewill, our specialist tax experts can review your position and let you know where you stand. Minimising your tax liability requires careful planning of capital asset disposals. In some cases, we can recommend changes to bring you within the requirements for the BADR.
We’ve been helping clients to run their businesses and manage their affairs in a compliant and tax-efficient way for many years, providing proactive and intelligent advice in a supportive and friendly manner.