When you are selling assets of your business or selling the whole business realization of capital gains will be evident. In such instances guidelines given below will help in dealing with the tax matters and claiming the tax reliefs related to those capital gains.
Business Assets Disposal Relief (BADR) statute will replace the guidance given under Entrepreneurs Relief, w.e.f. 06th April 2020. And if eligible to claim this relief under BADR, requires only to pay tax at 10%.
Understand under which scheme I am eligible claim the relief?
1. Selling whole or part of the business
- Business should Be a Sole Trader or Business Partner
- You should own the business for last 2 years
If the business is not sold instead, it’s a closing down, the business assets should be disposed within 3 years of closure to be eligible for this claim.
2. Selling the Shares or Securities
Following two conditions should be satisfied at least 2 years up to the date of selling the shares/ securities.
- You should be an Employee/Office holder of the company/Group
- Main activity of the company/ group should be trading shares/securities (not Long-Term investing)
If these two conditions satisfy, check the following two schemes which will relevant to you,
2.1Shares/Securities obtained through Employee Management Incentive (EMI):
- Share purchase date should be after 5th April 2013
- Option to buy the shares has to be given 2 years before the selling date
- Shares/Securities not obtained (EMI):
Following both conditions need to satisfy for last two years
- at least 5% ownership shares and voting rights**
- Entitled to 5% of profits and disposal proceeds if the company is sold
Drop of the holding below 5% due to new share issue won’t be a problem to claim.
Need to be elected or treated as shares being sold and rebought immediately before new shares are issued– This gain also applicable under BADR)– Tax on this gain can be postponed.
3. Selling the Assets Lent to the Business:
Following both conditions need to satisfy
- At least 5% of individual’s ownership (Partnership/shares) must be sold where individual has at least 5% ownership of the business
- Sold assets are used by the business at least 1 year up to the sold date
4. Selling Assets of a Trust:
Trustee will also qualify when selling assets of a Trust
Understand how to pay tax once the eligibility scheme is selected?
After carefully analysing and choosing under which eligibility criteria you will be entitled to claim the Business Assets Disposal Relief, use following easy steps to calculate how much of tax you will be liable to pay.
- Calculate the gains of all qualifying assets (Total gains less Losses, The net figure)
- Reduce the tax-free allowance
- Calculate tax at 10% for amount after deducting tax free allowance
If you have other gains the amount of tax related to those will depend on what income tax rate you are falling (whether higher rate or basic rate).