Business Asset Disposal Relief: A Change of Name for ER

I seem to be having lots of conversations about Entrepreneurs Relief (now Business Asset Disposal Relief of course), and much like Business Asset Taper Relief before it (pre-2008), I’m pretty sure both practitioners and clients alike will use the old nomenclature rather than the new for a little while yet.

However, what is more important than the change of name is the reduction of the lifetime allowance from a generous £10m back to the original £1m that was granted when it was introduced over 12 years ago. Now, whilst most people will have been aware of that, what a lot of (admittedly non-tax) people will have overlooked is the anti-forestalling provisions, i.e. banging a contract in quickly before the deadline date! This has been a favourite of lawmakers for some years now.

So, what is “anti-forestalling” and what does it mean for you? Well, although the reduction of the business asset disposal relief lifetime limit from £10m to £1m only applies to disposals on or after 11 March 2020 the anti-forestalling provisions mean that there are circumstances in which the reduction of the allowance can apply to transactions as far back as 6 April 2019 (and potentially even earlier). Generally, these circumstances fall into these main areas:

• Unconditional Contracts, where normally the “tax point” for a capital gains tax transfer is the date of contract rather than the date of exchange, so where one has exchanged contracts (i.e. ones on which there are no qualifying conditions to be met) it could have been quite simple to exchange contracts before 11 March 2020, but not complete for some months thereafter. If you find yourself in this position seek advice immediately as there are some “get-out” clauses in the provisions that might apply.

• Reorganisations and Share exchanges, being what we would usually refer to as a paper transaction, but where an election has been made to disapply the no disposal treatment (arising under s127 TCGA 1992) to have the effect to trigger a taxable gain on what would normally be a tax-neutral event. The rules around these have many similarities, but a few distinct differences as well, and both can apply to transactions occurring on or after 6 April 2019 but before 11 March 2020.

So, if you entered into an unconditional contract before 11 March 2020, or performed a “taxable” exchange of shares or reorganisation, then you might want to revisit those contracts and see whether you’re caught by these new measures…