Business disposals Flashcards
Disposing of an unincorporated business Disposing of a company Capital gains tax for individuals Gift relief Business asset disposal relief Post-tax proceeds (29 cards)
What are the tax implications of disposing of an unincorporated business?
There may be both income tax and capital gains tax implications depending on the assets disposed of.
What are the tax implications of disposing of land and buildings in a business sale?
Capital gain or loss = Proceeds – Original Cost
What are the tax implications of disposing of goodwill in a business sale?
Capital gain = Proceeds (usually no original cost, so gain equals proceeds)
What are the tax implications of disposing of plant and machinery?
A balancing charge or allowance may arise, affecting trading profits in the final period.
What are the tax implications of disposing of inventory in a business sale?
Treated as a trading transaction—the sale generates trading profit or loss.
What are the two main ways of disposing of a company?
Selling the trade and assets
Selling the shares
What are the tax implications of selling a company’s trade and assets?
Same as selling an unincorporated business, with capital gains or income tax depending on the asset type.
What is the tax implication of selling shares in a company?
Results in a capital gain or loss = Proceeds – Original cost of shares
How does capital gains tax (CGT) apply to individuals in 2024/25?
No indexation allowance
An annual exempt amount of £3,000
Gains above this are taxable gains
What are the CGT rates for individuals?
10% for gains within the basic rate band
20% for gains above the basic rate band
What is gift relief (also known as holdover relief)?
A relief that allows individuals to defer a capital gain when gifting qualifying business assets.
What is the capital gains tax treatment when an asset is gifted or sold at undervalue?
It is deemed to be sold at market value, which can create a gain even if no proceeds are received.
Who can claim gift relief?
Only individuals, and the claim must be made jointly by the donor and the recipient.
What types of assets qualify for gift relief?
Assets used in the trade of the donor or the donor’s personal trading company, or shares in an unquoted or personal trading company.
What is a personal trading company for the purposes of gift relief?
A company in which the donor owns at least 5% of the ordinary share capital and voting rights.
How does gift relief affect the recipient’s base cost for CGT purposes?
The recipient’s base cost is reduced by the held-over gain, deferring the CGT until they dispose of the asset.
What is the effect of claiming gift relief on the donor’s capital gain?
The donor pays no CGT at the time of the gift — the gain is fully deferred.
Who pays the CGT eventually after a gift relief claim?
The donee (recipient) pays CGT when they dispose of the asset in the future.
What type of relief is Business Asset Disposal Relief?
It is a tax reduction relief, not a deferral relief.
Who can claim Business Asset Disposal Relief?
Only individuals.
What tax rate is applied to qualifying gains under Business Asset Disposal Relief?
A flat 10% tax rate.
What is the lifetime limit of qualifying gains for Business Asset Disposal Relief?
£1 million.
By when must the claim be made for the 2024/25 tax year?
By 31 January 2027.
How is the basic rate band used with Business Asset Disposal Relief?
It is used up by BADR gains before any other gains are taxed.
