Business Asset Disposal Relief Flashcards
Senario - Sole trader disposing of sole trade
Condition - The taxpayer must have owned the business for at least 2 years prior to disposal
Scenario - Sole trade ceases to trade and sells a business asset
Condtion - The taxpayer must have owned the business for at least 2 years prior to the disposal
The asset must have been used in the business at the time of disposal and sold within 3 years of cessation.
Scenario - Partner sells partnership share or retires
Condition - The partner must have been a partner in the partnership for at least 2 years prior to disposal
Scenario - Individual sells shares in unquoted trading company
Condtion
Prior to the disposal the individual must have owned at least 5% of the nominal share capital, voting rights and rights to assets distributed on winding up.
An employee of the company
The company must be a trading company
All must be held for 2 years.
Scenario - Partner sells some of their share in partnership and also sells an asset that they own personally which was used in the partnership
Condition
Selling at least a 5% share in partnership, or the remaining part of their interest on the basis they owned at least 5% in 3 of the last 8 years
The associated asset must have been owned by the partner for at least 3 years
The accociated asset must have been used in the partnership for the 2 years before disposal
If partnership ceases 1 year to sell (can lease & rent) or 3 years no lease or rent
If partnership carries on 3 years to sell no lease or rent
Scenario - An individual sells shares in their company and also sells an asset that they own personally which was used in the company.
The individual must be disposing of at least at 5% share in their personal trading company
The associated asset must have been owned by the individual for at east 3 years prior to disposal
The accociated asset must have been used in the trade for at leats 2 years prior to disposal
If company ceases 1 year to sell (can lease & rent) or 3 years no lease or rent
If company carries on 3 years to sell no lease or rent
Restrictions
Associated asset owned for 10 year used in business for 5 years - time apportion
Associated asset rented to company or partnership
Commerical rent 0%
No rent 100%
No restriction on assets sold owned by sole trade or partnership. eg office block top floor flat. Condition just need to be used in trade at the time of disposal.
BADR and unutilised basic rate band
Gains allowable for BADR are allocated to the basic rate band first
AEA and BADR
The annual exempt amount is allocated to highest tax rate gains
Residential property 18% 28%
Other - 20%
BADR -10%
Sole trader sells his business
Property £300
Goodwll £200
P&M £600
Debtors £300
Only the gain on propety and goodwill are chargeable to CGT.
Lifetime limit
£1,000,000 was £10,000000 upto 10th March 2020
Example three from text book.
Salary of £20,000 - 12770
3 case law
Mc Gregor - Taxpayer had farmed 38 acres of land for a period of 10years. When he was 68 he sold 5 acres of land with planning permsion realising a gain. Tried to claim retirement relief.
High court found that the 5 acres did not constitude part of the taxpayers farming business instead the 5 acres was an asset in the business therefore no retirement relief could be claimed
Mr Harrision advertised the sale of his Coach and mini bus business. In March 1990 he sold the business premises these were rented back to him. In Decemebr he sold the business to a collegue. He disputed whether the sale of premises qualified for retirment relief
It was found the premises did not qualify as this was a sepperate transaction to the sale of the actual business
Mr Gilbert carried on a busiess selling food on commisionfor 9 suppliers
He sold part of his business for 1 of the suppliers this included the dateabase containg the list of customers and the goodwill.
It was held that Mr Gilbert has sold part of his business as the business was easily identifiable as 9 different suppliers. Entreprenue relief was available on the sale of 1/9th of the business.
Admin for BADR 2022/23
Must be claimed before 12 months following the filing deadline of the tax year in which the disposal took place
31st Jan 2025
Wife owns 4% Husband owns 2% is BADR available
No - although Husband can transfer shares to Wife although two years would need to elapse.
Husband owns 95% works for company
Wife owns 5% does not work for company
BADR for husband
None for wife either transfer shares to husband or make an employee (2 years prior to disposal)
Explain the relief available (dilution)
When a company ceases to be an individual personal trading company and prior to the dilution was eligble for BADR then a relief is available
An election can be made for a deemed disposal and reaquisition of the shares immediately before the diltuion
The election will result in a notional gain. BADR can be applied to the gain
The amount of sale proceeds is the value of the shares on the assumption that all the share capital of the company is sold at MV
The proceeds will become the new base cost of the shares going forward
What are the conditons for dilution relief
The individual must have been eligible for BADR immediately prior to the dilution
Ceases to be an individuals personal trading company as a result of an issue of shares wholly for cash where the share are subscripbed and issued for commercial reasons
How to claim Dilution relief
Election must be made 12 months following the filing deadline of the tax year in which the deemed disposal took place
Futher relief / how to claim
An addtional election can be made to defer the gain untill the shares are actually sold
When the shares are actually sold the deferred gain will become chargeable and BADR can be applied
This election must be made before 4 years following the end of the tax year in which the deemed disposal takes place