CG64130 | Business Asset Disposal Relief: calculation of the relief - examples
From HM Revenue & Customs · Capital Gains Manual
Example 1
K ran a confectioner/tobacconist business for several years. He then sold it and made a gain of £38,000 (“relevant gains”) on the goodwill, but a loss of £8,000 (“relevant losses”) on the premises. Assuming he qualified for the relief this is applied to the net gains of £30,000.
If the disposal took place before 23 June 2010 the £30,000 would be reduced by 4/9th to £16666. This will be the “chargeable gain” and is subject to reduction by other allowable losses and the AEA.
If the disposal took place on or after 23 June 2010 the £30,000 would be the “chargeable gain” and, subject to reduction by other allowable losses and the AEA, would be charged to CGT at 10%.
The loss of £8,000 on the premises is not otherwise allowable.
Example 2
D ran a pharmacy for over 20 years until March 2011. He sold the whole business as a going concern on 31 March 2011 realising a gain £5,250,000.
D had not previously claimed the relief. The gain qualifies for relief as a disposal of whole or part of a business - see CG64015 - and he makes a claim within the relevant time limit.
As the disposal was after 23 June 2010 but before 5 April 2011 D has the maximum relief of £5,000,000 qualifying gains available, so he is entitled to the whole of his lifetime limit and will have that amount of his gain charged at a rate of 10%. The balance of the gain of £250,000 will be charged at D’s relevant rate of CGT. Assuming that D had no other gains or allowable losses during the year the calculation will be as follows:
| - | Amount | Amount | Amount |
|---|---|---|---|
| Total qualifying gain | £5,250,000 | - | - |
| Applicable lifetime limit | £5,000,000 | - | - |
| Balance of gain above limit | - | £250,000 | - |
| Less Annual Exempt Amount 2010-11 | - | £10,100 | - |
| Gains chargeable at 10% | £5,000,000 | - | £500,000 |
| (TCGA1992/S169N(3) | - | - | - |
| Gain chargeable at applicable CGT rate | - | £239,900 | £67,172 |
| (assume 28%) | - | - | - |
| CGT due | - | - | £567,172 |
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Example 3
E ran a landscaping business which she sold in October 2008 realising a gain of £900,000 all of which qualified for the relief (when the lifetime limit was £1m). In 2009 she started another business as a travel agent which she sold in February 2011 (lifetime limit now £5m) realising a gain of £4,500,000. E makes a second claim for relief on this second gain. It qualifies for relief but only £4,100,000 of the gains will be eligible for relief as this uses up the remaining amount of her lifetime limit (£5,000,000 - £900,000).
| - | Amount | - |
|---|---|---|
| Gain 1 2008/9 qualifying gain | £900,000 | - |
| Lifetime limit of | £1,000,000 | - |
| Less reduction of 4/9th | £400,000 | - |
| Chargeable gain 1 | £500,000 | Charged at 18% rate |
| Lifetime limit remaining | £100,000 | - |
| Increase in lifetime limit from £1m to | - | - |
| £5m from 23 June 2010 | £5,000,000 | - |
| Available lifetime limit | £4,100,000 | - |
| Chargeable Gain 2 - 2011/12 | - | - |
| Qualifying gain | £4,500,000 | - |
| Gains reduced by available | - | - |
| Lifetime limit relief | £4,100,000 | Charged at 10% rate* |
| Balance of gain 2 | £400,000 | Charged at full CGT rate* |
| Lifetime limit remaining to carry | - | - |
| Forward to subsequent disposals until 5 April 2011: | £0 | - |
| Lifetime limit remaining to carry forward to subsequent disposals from 6 April 2011 to 10 March 2020: | £5,000,000 | Lifetime limit increased to £10 million |
| Lifetime limit remaining to carry forward to subsequent disposals from 10 March 2020: | £0 | Lifetime limit reduced to £1 million |
*Subject to any available allowable losses and AEA.
Example 4
F operated a smallholding and also operated a fruit and vegetable shop. He sold the smallholding in January 2009 realising net gains of £1,250,000 in 2008/9 and claimed the relief. This was due up to the lifetime limit that applied at that time of £1m.
F then disposed of the shop in May 2010 (lifetime limit now £2m) realising net gains of £800,000 and made a second claim for relief. This second gain all qualifies for relief as a result of the increase in the lifetime limit from £1m to £2m. Although only £800,000 of this increase has been used the balance remaining cannot be set back against the unrelieved gains on the earlier disposal, it can only be carried forward.
| - | Amount | Amount | Amount |
|---|---|---|---|
| Gain 1 2008/9 qualifying gain | £1,250,000 | - | - |
| Lifetime limit | £1,000,000 | - | - |
| Less reduction of 4/9th | - | £444,445 | £555,555 |
| Unrelieved part of gain 1 | £250,000 | - | £250,000 |
| Chargeable gain 1 | - | - | £805,000* |
| Lifetime limit remaining | £0 | - | - |
| Increase in lifetime limit from £1m to | - | - | - |
| £2m between 6 April and 22 June 2010 | £1,000,000 | - | - |
| Gain 2 2010/11 qualifying gain | £800,000 | - | - |
| Gains reduced by available | - | - | - |
| Entrepreneurs’ relief | £1,000,000 | - | - |
| Less reduction of 4/9th | - | £355,556 | £444,444 |
| Unrelieved part of gain 2 | - | - | £0 |
| Chargeable gain 2 | - | - | £444,444* |
| Lifetime limit remaining to carry forward | - | - | - |
| to subsequent disposals | £200,000 | - | - |
| Lifetime limit remaining to carry forward to subsequent disposals from 22 June 2010 to 5 April 2011: | £3,200,000 | - | Lifetime limit increased to £5 million |
| Lifetime limit remaining to carry forward to subsequent disposals from 6 April 2011 to 10 March 2020: | £8,200,000 | - | Lifetime limit increased to £10 million |
| Lifetime limit remaining to carry forward to subsequent disposals from 11 March 2020: | £0 | - | Lifetime limit reduced to £1 million |
*subject to any available allowable losses and AEA.