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A Relief By Any Other Name… Business Asset Disposal Relief vs Investors’ Relief

Posted 04/11/2020

From 6 April 2020 Entrepreneurs’ Relief has been renamed to Business Asset Disposal Relief, though the change in name doesn’t affect the operation of the relief. One significant change to Entrepreneurs’ relief is that the lifetime limit on gains relieved has been reduced from £10 million to £1 million.

An alternative relief, Investors’ relief, is still available, which allows investors to benefit from a 10% Capital Gains Tax rate on the first £10 million of capital gains on qualifying disposals. Investors’ relief, however, differs from Business Asset Disposal Relief in that is designed for investors who are not involved in the running of the business, which would exclude employees (see “Business Angels” exemption below).

Though Investors’ Relief and Business Asset Disposal Relief share similarities, they are still 2 different reliefs, and it is entirely possible to benefit from both the £10 million and £1 million caps.

The following table explores the similarities and differences between the two reliefs:

 Business Asset Disposal Relief (formerly Entrepreneurs’ Relief)Investors’ relief
Lifetime limit on gains relieved£1m£10m
Share ownershipMore than 5%No restrictions
Holding period2 years3 years
Involvement with companyEmployee/director“Business angels” only [1]
Qualifying sharesOrdinary shares [2]Ordinary shares [3]
Qualifying companyTrading companyTrading company
Date restrictionsStricter qualifying conditions for shares disposed from 29 October 2018 [2]Shares issued on or after 17 March 2016 that are disposed of on or after 6 April 2019  
Listed vs unlistedUnlistedUnlisted

[1] “Business angel” exemption applies to:

  • Unremunerated directors
  • An investor who becomes an employee more than 180 days after the shares were acquired and this was not contemplated at the time of acquisition.

[2] For disposals on or after 29 October 2018 the 5% holding must give the shareholder at least 5% of the:

  • Voting rights in the company
  • Profits available for distribution
  • Distributable assets on winding up
  • Proceeds in the event of a sale

[3] For IR ordinary shares are all shares apart from those that entitle the holder to a fixed rate of dividend but no other rights to the profits of the company.

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