Business Asset Disposal Relief (was Entrepreneurs Relief)

A few criteria need to be met for the disposal to qualify for business asset disposal relief.

Personal company

You need to:

• hold at least 5% of the ordinary share capital,
• have at least 5% of the voting rights, and
• be an officer (eg director) or employee of the company

Trading company

The company cannot have substantial investment activity.  By substantial, HMRC typically base this on 20% of a variety of factors. We’ve written a separate article on whether your company will be deemed a trading company or an investment company.

Qualifying period

All the above needs to have applied for two full years. This will either be the period prior to the liquidation commencing, or the period prior to the trade ceasing if trade ceases prior to liquidation. The liquidation can potentially follow up to 3 years from the cessation of trade.

Transactions in securities

HMRC can refuse to give beneficial tax treatment where the trade and assets (except cash) of a company are transferred out prior to liquidation. We’ve written a separate article for contractors worried about transactions in securities.