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Business Asset Disposal Relief and Changes in 2020

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What is Business Asset Disposal Relief in an MVL?

Business Asset Disposal Relief – which used to be known as Entrepreneurs’ Relief – is a tax relief scheme which can lower the payable rate of Capital Gains Tax upon the sale or liquidation of a solvent company. CGT can be reduced to 10% for qualifying gains up to a lifetime limit of £1m.

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What is Business Asset Disposal Relief (or Entrepreneurs’ Relief) and do I qualify?

Business Asset Disposal Relief is a tax relief scheme which allows you to reduce the effective rate of Capital Gains Tax (CGT) from a top rate of 20% down to 10% on the sale or disposal of qualifying assets. This can represent a huge tax saving for company directors, sole traders, and business partners, and is available to spouses and civil partners if they also meet the qualifying conditions. It was known as Entrepreneurs' Relief until 6 April 2020.

In order to benefit as a company director or employee, you must have a minimum shareholding of 5% when the sale or disposal is made. There is no limit to the number of businesses you can sell throughout your career and still qualify for this scheme, instead Business Asset Disposal Relief has a lifetime limit set at £1 million of capital gains.

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What exactly is Business Asset Disposal Relief and how can you make a claim?

When you dispose of a business, or part of a business, you may be eligible to claim Business Asset Disposal Relief (sometimes known as Entrepreneurs’ Tax Relief). Disposal can be facilitated through a sale or gifting of the business, or closing down the company through a solvent liquidation procedure known as Members’ Voluntary Liquidation (MVL).

By claiming Business Asset Disposal Relief you reduce the liability for CGT, but you must meet the qualifying conditions during the two years prior to the disposal or sale. 

The deadline for claiming is the 31 January of the year following the tax year in which the sale or disposal was made.

What’s changing with Business Asset Disposal Relief/ Entrepreneurs’ Relief in 2020?

Rishi Sunak, Chancellor of the Exchequer, announced changes to the Entrepreneurs’ Relief scheme during his first Budget speech in March 2020. Following growing calls to amend, or even abolish, Entrepreneurs' Relief completely, Sunak revealed that the lifetime limit of qualifying gains would be reducing from £10m down to £1m. This brings the lifetime limit  back down to the original level when the tax break was first introduced by Gordon Brown in 2008. Entrepreneurs' Relief was also renamed Business Asset Disposal Relief in April 2020.

Any gains above £1m will be subject to standard CGT rates which are 20% for higher rate taxpayers.

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At Real Business Rescue, our licensed insolvency practitioners and experienced business advisers are well placed to support you through your business exit strategy and provide industry-leading advice on Business Asset Disposal Relief/ Entrepreneurs’ Relief. We provide a free initial consultation at your convenience and assist directors, shareholders, and stakeholders across the UK through an extensive network of 100+ offices.

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