CGT: Reliefs, disposal of a business or its assets

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). 

Rollover Relief (section 152): 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.
• Only certain types of asset qualify. These include land, buildings, fixed plant and machinery and goodwill. 
• The assets do not have to be of the same type.
• 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.
• 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 where the conditions are met.
• Relief 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 It was withdrawn on 31 March 2018.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 (section 247): compulsory purchases of land

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 shown 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 qualifies for Private Residence Relief (PRR) at any time during the six years from the date 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) (section 169H): 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% or 24%. It applies to gains made:

• On the disposal of business assets (which can include shares and securities in some companies).
• On a disposal of trust business assets.
• On a disposal associated with a material disposal.

See: Business Asset Disposal Relief (Entrepreneurs' Relief)

See How to incorporate a business for an example of how this relief is calculated and interacts with the other reliefs.

 Investors' Relief (section 169VA)

• This relief applies only to share purchases made on or after 17 March 2016 and is available to individuals on the disposal of qualifying shareholdings.
• It reduces the tax charged on qualifying gains to 10% for higher and additional rate taxpayers.
• The relief has some similarities to Business Asset Disposal Relief, but is not generally available to directors or employees.
• See Investors' Relief