Which Capital Gains Tax (CGT) reliefs apply when a person replaces or disposes of an asset used by a business, the whole or part of a business, or shares in a company?
This is a freeview 'At a glance' guide to Capital Gains Tax (CGT) reliefs for businesses.
There are now six main reliefs, all references are to the Taxation of Chargeable Gains Act 1992 (TCGA).
|Type of asset
|Rollover (replacement of business assets)
|Assets used for the purposes of a trade or a deemed trade.
|A business and its assets (no requirement for the business to be a trade) on incorporation in return for shares.
|Disincorporation (for transfers between 1 April 2013 and 31 March 2018)
Disposal of a company's business; its land and property and goodwill, to its shareholders.
(no requirement for the business to be a trade)
|Rollover relief (compulsory purchase)
Land sold due to compulsory purchase, where the consideration is reinvested to acquire new land.
Asset used for the purpose of a trade, or shares in a trading company.
s.260: asset transfers (not necessarily business assets) that are immediately chargeable to IHT.
|Business Asset Disposal Relief (Entrepreneurs' Relief)
A business and business assets. 'Business' means a trade, profession or vocation.
Business assets include shares in a trading company.
A sale of shares by a company investor.
Rollover: replacement of business assets
The relief is available to individuals and companies.
- A capital gain made on the disposal of a business asset is deferred by rolling it over against the cost of acquiring a replacement business asset within the period commencing 12 months before and ending three years after the disposal.
- Relief is restricted when the proceeds of the disposal of the first asset are not fully reinvested in the new one or where there is partial business use.
- The assets do not have to be of the same type.
- A company may deduct the indexation allowance (up to 31 December 2017) before rolling over its gains.
- Business Asset Disposal Relief (BADR) (formerly Entrepreneurs' Relief) cannot be used against a gain before it is rolled over.
- The relief is extended to groups so that a gain made by one company can be rolled into the purchase of a qualifying asset by another group company, subject to certain conditions.
- See CGT: Rollover Relief
Incorporation relief (section 162): transfer of a business to a company
This relief is available to individuals.
- The gain on the disposal of an unincorporated business and its assets is deducted from the base cost of the new shares issued by the company.
- It is given automatically.
- It is restricted if part of the consideration is cash, for full relief the consideration must be wholly shares in the company.
- All assets including goodwill and land and buildings, with the exception of cash, must be transferred to the new company.
- See CGT: Rollover (Incorporation) Relief
Disincorporation relief (section 162B): transfer of a company's business to its shareholders
This relief was available to companies. It was withdrawn on 31 March 2018.
- The gain on the disposal of the company's business and its assets was deducted from the deemed acquisition cost of the shareholders.
- Claims were restricted to the disposal of land and property and goodwill with a market value below £100,000.
- See Disincorporation Relief
Rollover relief: compulsory purchases of land (section 247)
This rollover relief is available when land is disposed of to an authority exercising compulsory powers.
- The landowner must not have been actively looking for a sale or showing a willingness to sell.
- The consideration received for the disposal must be reinvested in other land in the period commencing 12 months before and ending three years after the disposal.
- This relief cannot be claimed if the replacement land will be subject to a Private Residence Relief (PRR) claim in respect of the first six years of acquisition.
Holdover or 'gift' relief (section 165 or 260)
This relief is available to individuals and the trustees of a settlement.
- The gain on the disposal of both business and some non-business assets is deferred by holding it over.
- The donor does not pay tax at the time of the gift, the gain is deferred and deducted from the donee's base cost.
- A joint election is required where under s165.
- No valuation is needed (HMRC Statement of Practice 8/92).
- S.260 applies where there an immediate charge to Inheritance Tax.
Relief can be restricted if there is a non-trade use of assets.
No relief is available under s.260 for transfers to a trust that is:
- Settlor interested.
- Dual or non-resident.
- A qualifying disabled person’s trust.
- See CGT: Holdover/Gift Relief
Business Asset Disposal Relief (formerly known as Entrepreneurs' Relief): disposals of business assets
The relief is available to individuals and the trustees of a settlement.
The relief ensures that chargeable gains up to a lifetime limit (currently £1 million) that are subject to the relief are taxed at 10%, as opposed to 20%. It applies to gains made:
- On the disposal of business assets.
- On a disposal of trust business assets.
- On a disposal associated with a material disposal.
See How to incorporate a business for an example of how this relief is calculated and interacts with the other reliefs.
- A CGT relief introduced for share purchases made on or after 17 March 2016.
- Available to individuals on the disposal of qualifying shareholdings.
- Reduces tax charged on qualifying gains to 10% for higher rate taxpayers.
- Has some similarities to Business Asset Disposal Relief.
- Not available to directors or employees.
- See Investors' Relief