CG64130 - Business Asset Disposal Relief: calculation of the relief - examples

Example 1
Example 2
Example 3
Example 4

Example 1

K ran a confectioner/tobacconist business for several years. He then sold it and made a gain of £38,000 (“relevant gains”) on the goodwill, but a loss of £8,000 (“relevant losses”) on the premises. Assuming he qualified for the relief this is applied to the net gains of £30,000.

If the disposal took place before 23 June 2010 the £30,000 would be reduced by 4/9th to £16666. This will be the “chargeable gain” and is subject to reduction by other allowable losses and the AEA.

If the disposal took place on or after 23 June 2010 the £30,000 would be the “chargeable gain” and, subject to reduction by other allowable losses and the AEA, would be charged to CGT at 10%.

The loss of £8,000 on the premises is not otherwise allowable.

Example 2

D ran a pharmacy for over 20 years until March 2011. He sold the whole business as a going concern on 31 March 2011 realising a gain £5,250,000.

D had not previously claimed the relief. The gain qualifies for relief as a disposal of whole or part of a business - see CG64015 - and he makes a claim within the relevant time limit.

As the disposal was after 23 June 2010 but before 5 April 2011 D has the maximum relief of £5,000,000 qualifying gains available, so he is entitled to the whole of his lifetime limit and will have that amount of his gain charged at a rate of 10%. The balance of the gain of £250,000 will be charged at D’s relevant rate of CGT. Assuming that D had no other gains or allowable losses during the year the calculation will be as follows:

-

Amount

Amount

Amount

Total qualifying gain

£5,250,000

-

-

Applicable lifetime limit

£5,000,000

-

-

Balance of gain above limit

-

£250,000

-

Less Annual Exempt Amount 2010-11

-

£10,100

-

Gains chargeable at 10%

£5,000,000

-

£500,000

(TCGA1992/S169N(3)

-

-

-

Gain chargeable at applicable CGT rate

-

£239,900

£67,172

(assume 28%)

-

-

-

CGT due

-

-

£567,172

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Example 3

E ran a landscaping business which she sold in October 2008 realising a gain of £900,000 all of which qualified for the relief (when the lifetime limit was £1m). In 2009 she started another business as a travel agent which she sold in February 2011 (lifetime limit now £5m) realising a gain of £4,500,000. E makes a second claim for relief on this second gain. It qualifies for relief but only £4,100,000 of the gains will be eligible for relief as this uses up the remaining amount of her lifetime limit (£5,000,000 - £900,000).

-

Amount

-

Gain 1 2008/9 qualifying gain

£900,000

-

Lifetime limit of

£1,000,000

-

Less reduction of 4/9th

£400,000

-

Chargeable gain 1

£500,000

Charged at 18% rate

Lifetime limit remaining

£100,000

-

Increase in lifetime limit from £1m to

-

-

£5m from 23 June 2010

£5,000,000

-

Available lifetime limit

£4,100,000

-

Chargeable Gain 2 - 2011/12

-

-

Qualifying gain

£4,500,000

-

Gains reduced by available

-

-

Lifetime limit relief

£4,100,000

Charged at 10% rate*

Balance of gain 2

£400,000

Charged at full CGT rate*

Lifetime limit remaining to carry

-

-

Forward to subsequent disposals until 5 April 2011:

£0

-

Lifetime limit remaining to carry forward to subsequent disposals from 6 April 2011 to 10 March 2020:

£5,000,000

Lifetime limit increased to £10 million

Lifetime limit remaining to carry forward to subsequent disposals from 10 March 2020:

£0

Lifetime limit reduced to £1 million

*Subject to any available allowable losses and AEA.

Example 4

F operated a smallholding and also operated a fruit and vegetable shop. He sold the smallholding in January 2009 realising net gains of £1,250,000 in 2008/9 and claimed the relief. This was due up to the lifetime limit that applied at that time of £1m.

F then disposed of the shop in May 2010 (lifetime limit now £2m) realising net gains of £800,000 and made a second claim for relief. This second gain all qualifies for relief as a result of the increase in the lifetime limit from £1m to £2m. Although only £800,000 of this increase has been used the balance remaining cannot be set back against the unrelieved gains on the earlier disposal, it can only be carried forward.

-

Amount

Amount

Amount

Gain 1 2008/9 qualifying gain

£1,250,000

-

-

Lifetime limit

£1,000,000

-

-

Less reduction of 4/9th

-

£444,445

£555,555

Unrelieved part of gain 1

£250,000

-

£250,000

Chargeable gain 1

-

-

£805,000*

Lifetime limit remaining

£0

-

-

Increase in lifetime limit from £1m to

-

-

-

£2m between 6 April and 22 June 2010

£1,000,000

-

-

Gain 2 2010/11 qualifying gain

£800,000

-

-

Gains reduced by available

-

-

-

Entrepreneurs’ relief

£1,000,000

-

-

Less reduction of 4/9th

-

£355,556

£444,444

Unrelieved part of gain 2

-

-

£0

Chargeable gain 2

-

-

£444,444*

Lifetime limit remaining to carry forward

-

-

-

to subsequent disposals

£200,000

-

-

Lifetime limit remaining to carry forward to subsequent disposals from 22 June 2010 to 5 April 2011:

 £3,200,000

-

 Lifetime limit increased to £5 million

Lifetime limit remaining to carry forward to subsequent disposals from 6 April 2011 to 10 March 2020:

 £8,200,000

-

 Lifetime limit increased to £10 million

 Lifetime limit remaining to carry forward to subsequent disposals from 11 March 2020:

 £0

-

 Lifetime limit reduced to £1 million

*subject to any available allowable losses and AEA.