CG64125 - Business Asset Disposal Relief: calculation of the relief - general TCGA92/S169N
Entrepreneurs’ relief was renamed in Finance Act 2020 with effect from 6 April 2020. The new name is generally used in this guidance but should be read as applying to times before that date.
The maximum amount of gains which may benefit from Business Asset Disposal Relief is subject to a lifetime limit for all qualifying disposals. This lifetime limit has been revised as follows:
For qualifying disposals made:
- from 6 April 2008 to 5 April 2010 £1,000,000
- from 6 April 2010 to 22 June 2010 £2,000,000
- from 23 June 2010 to 5 April 2011 £5,000,000
- from 6 April 2011 to 10 March 2020 £10,000,000
- on or after 11 March 2020 £1,000,000
This is the limit of net gains (the aggregate of “relevant gains” less the aggregate of “relevant losses” in respect of qualifying business disposals) to which either the 4/9ths reduction is applied or which is chargeable at the 10% rate.
That amount of net gains cannot exceed the limit available at the time. Net gains are the aggregate “relevant gains” less the aggregate “relevant losses” in respect of a qualifying business disposal. It is this figure to which the 4/9th reduction is applied or which is charged at the 10% rate - TCGA92/S169N(4), (4A) & (4B).
A person may be entitled to the relief on more than one occasion. For example an individual may dispose of a second business, or their shares in several instalments, or they may sell part of their business at one time and then sell the rest of it later. Each disposal may meet the qualifying conditions for relief but as only a lifetime limit of gains is available for relief it is necessary to take into account earlier qualifying gains which have been the subject of a reduction or a 10% rate.
When accounting for earlier disposals, the amount to include in the calculation is either the net gain to which the 4/9ths reduction was applied (if the disposal was before 23 June 2010) or the net gain as was charged at the rate of 10% (if the disposal was on or after the 23 June 2010). This means that, for disposals on or after 22 June 2010, if the gain was subsequently reduced by other losses or the annual exempt amount then it is the amount after those deductions which is included.
Example
M made a qualifying business disposal on 30 August 2008 realising a gain of £1.2 million. If
a claim to relief is made then £1 million of those gains would be reduced by
4/9th. The balance of £0.2 million would fall outside of the lifetime limit applying at the time
of that disposal.
M then made a second qualifying business disposal on 31 May 2010 realising a gain of £1.5
million. £1 million of that gain would qualify for relief (that amount being reduced by 4/9th).
The balance of £0.5 million would fall outside the lifetime limit applying at that time of £2
million, taking into account the earlier claim.
On 1 February 2011 M made a third qualifying business disposal realising a gain of £4.5
million. Only £3 million would qualify for relief (that £3 million now being charged to CGT
at 10%). The balance of £1.5 million would fall outside the lifetime limit applying at that
time of £5 million, taking into account the two earlier claims.
On 1 May 2011 M made a fourth qualifying business disposal realising a gain of £5 million.
They also realised an allowable loss of £500,000. The AEA was £10,600 so the gain which
was charged at 10% was £4,489,400.
On 1 June 2013 M made a fifth qualifying business disposal realising a gain of £1 million.
Only £510,600 would qualify for relief. The balance of £489,400 would fall outside the
lifetime limit applying at that time of £10 million, taking into account the earlier claims.
Reduction of the lifetime limit – disposals on or after 11 March 2020
For qualifying business disposals made on or after 11 March 2020, the lifetime limit has been reduced to £1 million. If, prior to 11 March 2020, a person has already claimed relief on gains of £1 million or more, no further relief will be available on qualifying disposals made on or after 11 March 2020.
Example
All facts as in the example above, but this time the fifth disposal was on 1 June 2020. No relief will be available on the gain, because M’s earlier claims add up to £9,489,400, which is more than the £1 million lifetime limit applying at the time of the fifth disposal.
There are no transitional rules. The date of disposal of the asset (CG14250+) will determine the applicable lifetime limit.
Example
N ran a clothing retail business from 2 shops. In October 2019, he decided to retire and sell the business. He sold one of the shops on 1 February 2020, realising a gain of £600,000. The sale of the other shop was delayed until 1 April 2020 and N realised a gain of £500,000. N has never claimed the relief before.
N can claim relief on the full £600,000 of the gain on the disposal of the first shop, as the disposal took place when the lifetime limit was £10 million.
The second disposal took place after 11 March 2020, when the lifetime limit was £1 million. As N has already made claims to the relief of £600,000, only £400,000 of the gain on the disposal of the second shop will qualify for relief. The balance of £100,000 would be subject to the “normal” capital gains tax rates.
There are anti-forestalling rules that apply the reduced lifetime limit to £1 million to disposals that took place before 11 March 2020 (CG64172 and 64173).