Business asset disposal relief

Definition

Business asset disposal relief is a tax relief in the UK designed to reduce the capital gains tax (CGT) liability on the sale or disposal of certain business assets.  

What is the business asset disposal relief?

Business asset disposal relief encourages entrepreneurship by reducing the tax impact on business sales and asset disposals, thereby supporting business growth and investment. It supports entrepreneurs by making it more financially beneficial to sell or transfer business assets.

Individuals who sell or dispose of qualifying business assets can benefit from a reduced CGT rate of 10%, compared to the standard rates of 18% or 28% depending on their overall income. This relief applies to gains made from the sale of shares in a trading company, the sale of a business, or certain other assets used in a business, given that specific conditions are met.

To qualify for this relief, the individual must be a sole trader, a partner in a partnership, or a shareholder in a company. The business or asset must meet criteria such as being used in a trading business, and the individual must have held the asset for at least two years. Additionally, for shares, the individual must have been an officer or employee of the company.

The relief is capped by a lifetime limit on the amount of gains eligible for the reduced rate, which is set at £1 million. Gains exceeding this limit are taxed at the standard CGT rates. 

Example of the business asset disposal relief

A small business owner sells their retail store and its assets for a significant profit. They have held the business for over two years and meet all the qualifying criteria for business asset disposal relief. 

By applying this relief, the owner benefits from a reduced capital gains tax rate of 10% on the sale proceeds, rather than the higher standard rates. This tax saving makes the sale more financially advantageous, supporting the owner’s decision to retire and invest in new ventures.