As a business owner, you may want to minimise your liability for capital gains tax once you have sold a capital asset at a gain. In this instance, you may qualify for business asset disposal relief, sometimes called entrepreneur’s relief. This article will explain the rules to qualify for business asset disposal relief and how you might benefit. <\/p>\n\n\n\n
Business asset disposal relief (BADR) is a kind of tax relief. If you qualify for any form of tax relief, this means you can reduce the total amount of money you owe HM Revenue & Customs (HMRC)<\/a>. <\/p>\n\n\n\n You should note that only individuals qualify for BADR as opposed to companies.<\/p>\n<\/div>\n\n\n\n The effect of BADR is that HMRC charges you at the lower capital gains rate for the qualifying taxable chargeable gain. Currently, the lower rate is 10%. This is significantly lower than the taxable chargeable gain which currently sits at 20%. HMRC will likely charge this rate if you do not qualify for BADR. <\/p>\n\n\n\n Before we consider what conditions you must meet to qualify for BADR, we will look at some of the fundamental rules governing tax law for the sale of capital assets. <\/p>\n\n\n\n BADR is only available for qualifying capital assets. Capital assets are property that you use to generate income but are not an income asset itself. For instance, plants and machinery are capital assets. If you sell manufactured goods, you need the machinery to produce the goods you sell. <\/p>\n\n\n\n On the other hand, you will not benefit from BADR for any income you receive. Income is generally any recurring payment you receive, such as:<\/p>\n\n\n\n Another way to look at how the law defines a capital asset is if it is something you do not routinely buy or sell. Ultimately, not all capital assets qualify for BADR. <\/p>\n\n\n\n The taxable chargeable gain is the taxable difference between the price you paid for a capital asset and the price you sold it for. For instance, if you buy a warehouse to lease to a commercial tenant (i.e. a capital asset) for \u00a3100,000 and later sell it for \u00a3200,000, the difference is \u00a3100,000. <\/p>\n\n\n\n However, in practice, the taxable gain is usually less than the difference between what you paid for the capital asset and how much you sold it for. This is because HMRC grants you additional deductions. These include:<\/p>\n\n\n\n In other words, you subtract all these expenses from the amount you sold the capital asset for to arrive at the taxable chargeable gain. If you qualify for BADR, the relief will be applied to this amount. <\/p>\n\n\n\n BADR only applies to four kinds of transactions involving capital assets. These kinds of transactions are the sale of:<\/p>\n\n\n\n In this transaction, you must have personally sold the assets of a trading business. If you trade through a company and the company owns the assets, this kind of transaction will not apply. <\/p>\n\n\n\n Say you and a partner have a consulting business run as a partnership. You sell off your database to a competitor for \u00a3100,000. As the database is a capital asset and a part of a trading business, this transaction would qualify for BADR provided two conditions are met. These conditions are: <\/p>\n\n\n\n Investment businesses are not considered trading businesses. Likewise, the transaction would not qualify for BADR if you bought the partnership less than two years ago. <\/p>\n\n\n\n As in the above example, if your recruitment business no longer trades but you still manage to find a buyer for your recruitment database, this transaction may qualify for BADR if three conditions are met. These conditions are:<\/p>\n\n\n\n Many businesses are structured as companies. Where this is the case, the company owns the business assets, not the shareholders. Therefore, if instead of running your recruitment business as a partnership (or sole trader) but a company, and you sell your shares in the company<\/a>, the money you obtain for the shares may qualify for BADR. <\/p>\n\n\n\n For this to happen, you must ensure:<\/p>\n\n\n\n Importantly, if you are a mere shareholder and are not a director, secretary or otherwise an employee of the company, you will not benefit from BADR under this kind of transaction.<\/p>\n<\/div>\n\n\n\n If your company ceased trading not more than three years ago, BADR may apply if you sell your shares. However, you must have:<\/p>\n\n\n\n As above, you must be a director or otherwise an employee of the company to qualify. <\/p>\n\n\n\n\n\n Continue reading this article below the form\n <\/i>\n<\/a>\nWhat is a Capital Asset?<\/h3>\n\n\n\n
What is a Taxable Chargeable Gain? <\/h3>\n\n\n\n
Qualifying for BADR<\/h2>\n\n\n\n
1. Sale of All or Part of a Trading Business<\/h3>\n\n\n\n
2. Sale of Assets in a Business That Used to Trade<\/h3>\n\n\n\n
3. Sale of Shares in a Trade Company <\/h3>\n\n\n\n
4. Sale of Shares in a Company that Used to Trade<\/h3>\n\n\n\n