Business Asset Disposal Relief

Question 1

Senario - Sole trader disposing of sole trade

Answer 1

Condition - The taxpayer must have owned the business for at least 2 years prior to disposal

Question 2

Scenario - Sole trade ceases to trade and sells a business asset

Answer 2

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.

Question 3

Scenario - Partner sells partnership share or retires

Answer 3

Condition - The partner must have been a partner in the partnership for at least 2 years prior to disposal

Question 4

Scenario - Individual sells shares in unquoted trading company

Answer 4

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.

Question 5

Scenario - Partner sells some of their share in partnership and also sells an asset that they own personally which was used in the partnership

Answer 5

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

Question 6

Scenario - An individual sells shares in their company and also sells an asset that they own personally which was used in the company.

Answer 6

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

Question 7

Restrictions

Answer 7

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.

Question 8

BADR and unutilised basic rate band

Answer 8

Gains allowable for BADR are allocated to the basic rate band first

Question 9

AEA and BADR

Answer 9

The annual exempt amount is allocated to highest tax rate gains
Residential property 18% 28%
Other - 20%
BADR -10%

Question 10

Sole trader sells his business

Property £300
Goodwll £200
P&M £600
Debtors £300

Answer 10

Only the gain on propety and goodwill are chargeable to CGT.

Question 11

Lifetime limit

Answer 11

£1,000,000 was £10,000000 upto 10th March 2020

Question 12

Example three from text book.

Answer 12

Salary of £20,000 - 12770

Question 13

3 case law

Answer 13

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.

Question 14

Admin for BADR 2022/23

Answer 14

Must be claimed before 12 months following the filing deadline of the tax year in which the disposal took place

31st Jan 2025

Question 15

Wife owns 4% Husband owns 2% is BADR available

Answer 15

No - although Husband can transfer shares to Wife although two years would need to elapse.

Question 16

Husband owns 95% works for company
Wife owns 5% does not work for company

Answer 16

BADR for husband
None for wife either transfer shares to husband or make an employee (2 years prior to disposal)

Question 17

Explain the relief available (dilution)

Answer 17

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

Question 18

What are the conditons for dilution relief

Answer 18

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

Question 19

How to claim Dilution relief

Answer 19

Election must be made 12 months following the filing deadline of the tax year in which the deemed disposal took place

Question 20

Futher relief / how to claim

Answer 20

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