ATX Revision Notes

Reliefs

 Entrepreneur's relief / Business Asset Disposal
Relief (CGT 10%)

This rate is used for capital gains for the first £1,000,000 of chargeable gains

Conditions to get the relief:

1. The asset must have been owned for at least 2 years prior to the disposal.

2. The election for the relief must be made by the first anniversary of the 31/01 following
the end of the tax year of the disposal.

Therefore, if the tax year of disposal is 21/22, then the election must be made by
31/01/24.

3. It must be a disposal of a qualifying asset.

Qualifying assets include:

1. The disposal of a whole business run by a sole trader or by partners in a
partnership.

The assets must have been used for business purposes

Also, the entire business must be disposed of, if a single trading asset is disposed
of it, it will not qualify for the relief.

E.g. ER applies for (10%):

• Goodwill (but see below the exception)

• Freehold office, Business Premises

• Warehouse (but must be used for business purposes)

Exempt (do NOT pay tax on those):

• Inventory stock

• Debtors or Cash

ER does NOT apply for:

• Investment property  - is just held for investment, not used in the trade

 • If you transfer a business to a Close company (< 5 shareholders) and if the individual
is a shareholder in that company, then E.R is NOT available for Goodwill

2. Individual business assets of the individual’s or partnership’s trading business that

has now ceased.

Note the disposal of assets must take place within 3 years of cessation of trade.

The difference here is that the entire business is not being sold, it is being shut
down.

3. The disposal of shares in a trading company, where the individual has 5%

shareholding and is also an employee of the company, for 24 months prior to the
disposal.

e.g. A shareholder disposed of a 20% shareholding in a company

He had been an employee and owned the shares for more than 24 months.

Things to note:

• a) Gains that qualify for entrepreneur’s relief will take priority in using up the basic
rate band limit first.

Therefore, it is likely that other capital gains will normally fall into the higher band
and pay CGT at 20%.

• b) The annual exemption and relief for losses is NOT automatically given to the
gains which qualify for entrepreneur’s relief.

Therefore 2 separate calculations should be made and gains which do not qualify
should be given the annual exemption and losses carried forward first, in order to
save CGT at a higher rate.

 Investors’ Relief

Investors’ relief (IR) extends the benefits of ER to certain investors who do not meet the
conditions for ER.

To qualify for investors’ relief, the shares disposed must be:

1. unlisted ordinary shares in a trading company;

2. newly issued shares acquired by subscription;

3. owned for at least 3 years after 17 March 2016

The investor must not be an employee or director of the company whilst owning the
shares.

IR is subject to a separate lifetime limit of £10,000,000 of qualifying gains.

These gains are taxed at 10%.

 Principal private residence relief (Living in Your house)

Simply, don't pay any tax if you sell your house.

BUT you will have to if:

1. You didn't live there all the time

2. Used it for business purposes.

Where part of a residence is used exclusively for business purposes throughout the period
of ownership, the gain in relation to that part is NOT covered by relief.

Calculate the Gain:

Capital gain * Period of occupation (Deemed occupation) / Period of ownership

Deemed occupation:
1. Last 9 months - if the property was the individuals main residence at some point

2. Employment Abroad - Any periods during which the individual was required by his
employment to live abroad.

The person must come back to live in the house after this period and must live in the
house before this period to be considered to be deemed occupation.

3. Employment Elsewhere in the UK - Any period up to 4 years during which the

individual is required to live elsewhere in the UK due to employment.

The person must live in the house before and after this period

4. Up to 3 years for any reason

The person must live in the house before and after this period

 Letting relief (Letting your house)

- If an individual lives in a property as their main residence and lets all or part of the
residence for residential purposes, while they are living in the house.

- On the disposal of this property, in addition to claiming PPR relief, the Letting relief is
also available to reduce the capital gain.

This relief is the lower of:

• PPR relief given

• £40,000

• Gain attributable to letting

Rollover relief (The replacement of business assets)

- If you sell your warehouse and buy a new one, you can decrease the Capital gain by

deducting the new warehouse's purchase costs.

- 75% Gains Group is a Single entity and can apply for a Group Rollover Relief

Conditions:
1. The new and old assets must be used for business purpose.

2. You have to replace the asset 12 months prior to the sale or 36 months post the sale.

3. No Rollover relief is available if the amount NOT reinvested exceeds the chargeable
gain.

Qualifying assets:
• Land and buildings

• Fixed plant and Fixed machinery (NOT movable)

Assets that NOT Qualify:

• Movable machinery

• Intangible assets (Patent, Trade marks)

Step by step approach

1. Step 1 - Calculate the Chargeable gain

Disposal proceed                        X


The Original Purchase costs       (X)

Legal fees                                    (X)

Chargeable gain                           X

2. Step 2 - Calculate how much is NOT reinvested

Disposal proceeds - Purchase costs of the NEW asset

How much you get for the OLD asset          X


How much you pay for the NEW asset       (X)

Amount NOT reinvested                              X

3. Step 3 - Check whether the amount NOT reinvested (Step 3) exceeds the
Chargeable gain (Step 2)

No Rollover relief is available if the amount NOT reinvested > the chargeable gain.

4. Step 4 - Calculate the new Chargeable gain

Disposal proceed                               X


The Original Purchase costs              (X)

Chargeable gain                                  X

Rollover relief (Balancing figure)         (X)

The new Chargeable gain (Step 3)       X

5. Step 5 - Calculate Base cost

Basically, the Purchase costs of the NEW asset - the Rollover relief

This base cost will be used as the cost against the disposal of the new office.

Non Business Use

If an asset is NOT used 100% for Business purposes, then the Gain can NOT fully
be rolled over

What you have to do is: Multiply the Gain by the % of the business use or

Multiply the Gain by the years of the business purposes / total years of the
ownership (e.g. Gain x 3/5years)


 Holdover relief

If the new asset purchased is a depreciating asset (an asset with an expected life of 60
years or less)

Examples:

• Leasehold land and buildings

• Fixed plant and machinery

The gain arising on the disposal of the old asset is NOT rolled over and cannot be
deducted from the cost of the new asset.

Instead, the gain is to be temporarily frozen or “held over” until it becomes chargeable
on the earliest of the 3 following dates:

1. Date on which the new asset is disposed of.

2. Date on which the new asset ceases to be used in the trade.

3. 10th anniversary of acquisition of the new asset.

 Gift Holdover relief

A gift is a chargeable disposal and if the asset is a chargeable asset, it will be subject to
capital gains tax.

When a gift relief is claimed, the donor’s gain is deferred.

Qualifying assets:
1) Assets used in the trade of donor (where he’s a sole trader).

2) Shares in an unquoted company.

3) Shares in a personal company (must own at least 5% of shares and it’s a trading Co.).

Step by step approach:

1) Calculate gain on donor :

Market Value X

Cost (X)

Chargeable gain X

2) Donor will not have to pay CGT and the gain is deferred. The gain is deducted from the
donee’s cost (MV):

Cost to donee(MV) X

Gain (X)

Base cost X

Restrictions:

1) If you’re gifting shares and that company holds investment assets, only the gain that
relates to the trading part is eligible for gift relief :

eg: Chargeable gain on gift of shares = £15,000

trading assets = £500,000

investments = £100,000

£15,000 x £500,000/£600,0000 = £12,500 is eligible for gift relief.

2) If asset is not used in trade for the entire period owned :

gain x trading period/ownership period

eg: gain on gift of asset = £12,000

asset was owned for 8 years but used in trade for 4 years

Gain eligible for gift relief = £12,000 x 4/8 = £6,000.

3) Donee must be UK resident.

However, where a non-UK resident gifts UK land/building used in his trade, the donee
can also be non-UK resident.

Note:
- The relief is available only for individuals, not companies.

- The claim must be made by both the donor and donee and must be made 4 years from
the end of the tax year in which the disposal occurred.

eg: gift made in tax year 21/22 - claim must be made by 5 April 2026.


Enterprise investment scheme (EIS) - (Income tax)

If a qualifying individual invests in qualifying unquoted EIS/SEIS company shares, the
amount invested can be used to reduce the individual's income tax liability.

Conditions to be a qualifying investor

1. Individual at least 18 years and must subscribe for newly issued shares.

2. Must not own shares before the investment.

3. Must own less than 30% of the shares.

4. Must not be an employee of the company before making the investment, but can
become a paid director of the company after making the investment.

Income tax implications

• In the tax year in which investor subscribes for the shares he can claim EIS relief at 30%. 


• This means that he can reduce his income tax liability by: (Amount invested x 30%).


• The maximum relief that can be given is £300,000, therefore if more than £1,000,000 is
invested, only £300,000 EIS relief can be claimed.

• Dividends received by investors from the EIS company are subject to income tax at 7.5%,
32.5% and 38.1%.

• This relief can be claimed in the current or previous tax year.

• If the EIS shares are sold within 3 years of ownership, the relief given will need to be paid
back to HMRC.

Enterprise investment scheme (EIS) - CGT

If you dispose of any chargeable asset and reinvest in unquoted shares in a qualifying EIS,
then you can defer some (or all) of the gain.

Chargeable gain = Capital gain - Amount Reinvested into EIS

Conditions to be a qualifying investor

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1. The individual must be UK resident

2. The reinvestment must occur between 12 months before and up to 36 months after the
gain arises

3. The reinvestment must be wholly for cash, in new shares in an unquoted trading
company, trading in the UK. 

When EIS Share are sold

Any gain deferred will become chargeable eg. We bought them for £10,000, therefore the
Capital Gain Deferred was £10,000, so now we will have to pay CGT on £10,000.

If they are sold within 3 years - Capital gain is chargeable (Will have to pay the CGT) BUT
Capital Loss is allowable (will get the loss relief)

If they are sold after 3 years - Capital gain is EXEMPT and Capital Loss is allowable (will
get the loss relief)

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 Seed enterprise investment scheme (SEIS)

An SEIS is similar to the EIS but is intended to promote investment in smaller early stage
trading companies.

Conditions for investors in SEIS Companies

1. Individual at least 18 years and must subscribe for newly issued shares.

2. Must not own shares before the investment.

3. Must own less than 30% of the shares.

4. Must not be an employee of the SEIS company before making the investment but can
become a paid director of the company after making the investment.

Income tax implications for SEIS investment

• In the tax year in which investor subscribes for the shares he can claim SEIS relief at 50%
(tax reducer).

• Dividends received by investors from the SEIS company are subject to income tax at
7.5%, 32.5% and 38.1%.

• If investor sells the shares within three years he must repay 50% of the proceeds for the
shares. 

• The upper limit on SEIS relief is £50,000 (50% x 100,000) each tax year.

• This relief can be claimed in the current or previous tax year.

Incorporation Relief
Normally if an individual sells his business:

- he will have Chargeable gains on the individual assets (Business Premises, Goodwill)

- will have to pay the CGT on them

- however, because he sells all of his business and owned the business for more than 2
years, then he can get the Entrepreneur Relief @ 10%

However, there is a way to DEFER this CGT

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If an individual sells his business (sole trader business/partnership) to a company, then

the Chargeable gain that will arise can be deferred

Conditions for the relief

All of the following conditions must be satisfied.

1. The business must be transferred as a going concern

2. All of the assets (except cash) are transferred to a company

3. The consideration received for the transfer must be received in the form of shares in the
company.

How to calculate incorporation relief?

If the consideration is fully in shares, then the whole capital gain is deferred

If the consideration is only partly in shares, then the following formula is used:

Deferred gain = Total capital gain * (M.V. of the shares received / M.V of the total
consideration (shares + cash))

This deferred gain is deducted from the cost of the shares, to produce a lower base
cost, which will be used to calculate the capital gain when the shares are disposed of.

If an individual wants entrepreneurs’ relief when the shares are ultimately disposed of, the
qualifying time period of holding the shares for 2 years prior to disposal must be met.

The pre-incorporation period (i.e the period for which the individual owned the
unincorporated business) will also count towards the 2 years qualifying time period. This
helps in getting entrepreneurs’ relief sooner.

Example: Tom runs a business as a sole trader. After 3 years, he sold his entire business as
a going concern to Peter Ltd, for a consideration of £900,000 which was received fully in
shares of Peter Ltd. The chargeable gains on the assets sold were £300,000. Tom sold the
shares after 9 months for £1,000,000.

All the conditions were satisfied and so incorporation relief will be given automatically. He
received the consideration fully in shares and so the entire gain can be deferred.

Market value £900,000

Chargeable gain (£300,000)

Base cost for shares £600,000

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The disposal of shares after 9 months by Tom will qualify for entrepreneurs’ relief and the
gain will be taxed at 10%, since the pre-incorporation period of 3 years will count towards
the 2 year qualifying time period for entrepreneurs’ relief.

Sale proceeds £1,000,000

Base cost (£600,000)

Chargeable gain £400,000

CGT = £400,000 * 10% = £40,000.

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