A few months ago what was known as Entrepreneurs’ Relief was re-named Business Asset Disposal Relief. Many people are still uncertain about what this HMRC-approved tax relief for company shareholders is and whether they are eligible to claim it.
What changed with ‘business asset disposal relief’?
Entrepreneurs’ Relief was a tax relief available to shareholders selling shares and to business owners selling business assets. Since being essentially ‘rebranded’ to Business Asset Disposal Relief it has been significantly scaled back.
After the changes, the capital gains relief available on the sale of qualifying assets, which must have been owned by the seller for a minimum of two years, has been reduced. It used to be a lifetime allowance of £10 million, but now this stands at £1 million.
If you qualify, then under the new rules you will still be eligible to pay a discounted capital gains tax (CGT) rate of 10%, when selling any qualifying assets.
Why did Entrepreneurs’ Relief change?
Chancellor Rishi Sunak has listened to various representations and accepted that the previous relief was ‘expensive, ineffective and unfair’. This was mainly due to around three quarters of the relief going to just 5,000 people. The Chancellor stated in the budget statement that 80% of small businesses would be unaffected and that it would save the Treasury £6 billion over the next 5 years.
Despite the changes, the £1 million capital gains tax allowance at the 10% rate for qualifying business assets remains attractive. And is still available for a large number of SMEs that qualify. So, if you’re selling all or part of your business, and you qualify, you will only pay 10% on CGT on profits over the lifetime of your business.
One of the most effective and tax efficient ways to close down your company is through a Members’ Voluntary Liquidation (MVL).
At Clarke Bell, we provide a low cost MVL service (from £995 +VAT +disbursements) and aim to distribute 100% of the company assets to the shareholders after 35 days from the date of liquidation.
For more information about how you can benefit from closing your company down with an MVL, contact us on 0161 907 4044 or [email protected]