If your business is like most, you have a number of assets that you would like to dispose of.
Maybe you’re downsizing and need to get rid of some extra equipment. Or maybe you’re closing your doors for good and need to liquidate your assets.
Whatever the reason, Business Asset Disposal Relief can help make the process easier.
In this blog post, we will discuss what Business Asset Disposal Relief is, who qualifies for it, and how to apply.
What is Business Asset Disposal Relief?
Business Asset Disposal Relief is a tax relief that allows businesses to dispose of certain assets without paying capital gains tax. This relief is available for assets that are sold, given away, or scrapped.
The purpose of this relief is to encourage businesses to reinvest their money in new assets, rather than holding onto old ones.
To qualify for Business Asset Disposal Relief, you must meet the following criteria:
- You must be disposing of the asset for the purpose of generating income from a business activity.
- The asset must have been used in a business activity at some point during its life.
If you are a trustee of a settlement who disposes of property that includes shares or securities in a qualifying beneficiary’s personal trading company, or assets used in their business, you might be eligible for Business Asset Disposal Relief.
Although Business Asset Disposal Relief is available to most businesses, there are a few exceptions. One such exception is companies or trusts that are purely discretionary settlements. This means that the company or trust does not have any active business operations and exists solely to distribute income to its beneficiaries. If your business falls into this category, you will not be eligible for Business Asset Disposal Relief.
Types of Assets Covered by Business Asset Disposal Relief
Business Asset Disposal Relief covers a wide range of assets, including:
- Assets used in business include disposal of whole or part of your own business – this can include fixtures and fittings, plant and machinery, vehicles, office equipment, and other business assets.
- Assets that were in use for business and were disposed of within a period of 3 years, after the business ceased – this category excludes shares and securities and other assets that are held as investment.
- Assets owned personally, but used in business – this includes assets that were not acquired specifically for business use, but which were used in business at some point during their life.
- Shares or securities in a trading company or the business assets of a company – this can include shares or securities in a personal trading company, or the business assets of a company
Benefits of Business Asset Disposal Relief
There are several benefits to taking advantage of Business Asset Disposal Relief, including:
1. Encourages Businesses to Reinvest in New Assets:
By exempting businesses from paying capital gains tax on the disposal of certain assets, this relief encourages them to reinvest that money into new assets. This helps businesses stay competitive and grow.
2. Helps Businesses Downsize or Close their Doors:
Businesses that are downsizing or closing their doors can use this relief to dispose of their assets without incurring a tax liability. This can help them save money and make the process of shutting down their business less stressful.
How to Claim Business Asset Disposal Relief?
You must meet the relevant qualifying conditions for two years to be eligible for Business Asset Disposal Relief.
Individuals
You should claim Business Asset Disposal Relief in your 2020 to 2021 tax return if you can do so. If you cannot make your claim on your 2020 to 2021 tax return, you may do so by writing to HMRC or filling out Section A of the Claim for Business Asset Disposal Relief form.
Trustees of a Settlement
If trustees want to dispose of assets, they must do so with the approval of the qualifying beneficiary. You can make a joint claim to HMRC for Business Asset Disposal Relief either by writing or filling out the corresponding form. The qualifying beneficiary should fill out Section A, and the trustees should complete Section B.
Claims for the relief must be submitted to HMRC in writing within one year of the 31 January that follows the end of the tax year during which the qualifying disposal occurred.
What Happens when you Dispose of a Business Asset and don't Claim Relief?
If you dispose of a business asset and don’t claim Business Asset Disposal Relief, you may have to pay capital gains tax on the sale. The amount of tax you’ll owe depends on a number of factors, including the type of asset being sold and your personal tax situation.
If you’re not sure whether or not you should claim the relief, we recommend speaking to a tax professional.
Tips to Get the Most Out of Business Asset Disposal Relief
Here are a few tips to help you get the most out of Business Asset Disposal Relief:
1. Make Sure you Meet the Eligibility Criteria
To qualify for the relief, you must be disposing of the asset for the purpose of generating income from a business activity. Be sure to keep this in mind when deciding whether or not to claim the relief.
2. Keep Good Records
Good record keeping is important for any business, but it’s especially important when claiming tax reliefs. Be sure to keep track of your expenses and sales so that you can easily prove your eligibility for the relief.
3. Speak to a Tax Professional
If you’re not sure whether or not you should claim the relief, we recommend speaking to a tax professional. They can help you determine if you qualify and advise you on the best course of action.
The Bottomline
Business Asset Disposal Relief is the government’s way of encouraging businesses to reinvest in new assets. By exempting businesses from paying capital gains tax on the disposal of certain assets, this relief helps businesses stay competitive and grow.
If you think you may qualify for the relief, be sure to contact your local tax office and provide evidence of your eligibility. And remember, good record keeping is important for any business, but it’s especially important when claiming tax reliefs.
To learn more, get in touch with us today.
