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Business Asset Disposal Relief (Entrepreneurs Relief) Tax implications in Liquidation

Written by Robert Moore Marketing Manager 27 April 2021

Business Asset Disposal Relief (Entrepreneurs Relief) Tax implications in Liquidation

What is Entrepreneurs Relief?

Has actually been renamed Business Asset Disposal Relief (not sure why!) which allows you to pay less capital gains tax, at 10% on gains of all qualifying assets which are sold. It is applied when you sell your business, and usually in a Members Voluntary Liquidation (MVL). For more information regarding the MVL and Business Asset Disposal Relief, see our page on MVL . Capital Gains Tax is the tax on profit when you are selling something which has increased by value.

Am I eligible for the relief?

To qualify for Business Asset Disposal Relief , you must meet one or more of the following criteria:

  1. You must be disposing all or a part of a business, where you were a sole trader or business partner. Even if you dispose of the assets after, you are still eligible. However, you must own the business for over a year before you sell it and if you are closing the business, the assets must be sold within 3 years.
  2. You have at least 5% shares, securities or voting rights within the company being sold. You are also eligible if you have had the chance to buy your shares at least a year before the sale. For this, you must have been an employee of the firm for at least a year, and the company must be one which focuses on trading, instead of those which involve little trading, for example, those who focus purely on investment.
  3. You lent an asset to the business and it is being sold. This only applies if your assets were used for a year before the shares were sold, or if you have already sold 5% of your part of the business or shares.
  4. You’re selling shares which you got through an Enterprise Management Incentive scheme, after the 5th April 2013.

How do I work out the tax I will have to pay?

  1. Work out the gains of all the qualifying assets
  2. Add all the gains together (deduct any losses) to get the total taxable gain available for Business Asset Disposal Relief 
  3. Deduct any tax-free allowance
  4. You will pay 10% tax on what is left.

How do I actually claim for Business Asset Disposal Relief ?

To claim for Business Asset Disposal Relief  fill in Section A of the Entrepreneurs’ Relief Help sheet here , or you can do it via your Self-Assessment tax return. During your lifetime you can claim up to £1 million relief, with no limit on how many times you can claim for it.

Category: Liquidation

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