Reliefs and exemptions

The main reliefs are Business Asset Disposal Relief, which gives an 18% rate on up to £1m of lifetime gains for qualifying individuals, and the Substantial Shareholding Exemption, which can exempt a company's gain on selling a trading subsidiary. On a qualifying sale to an Employee Ownership Trust, half of the gain is relieved and the other half is taxed at normal rates. Taking shares in the buyer can also defer the gain.

A relief usually reduces or defers the tax rather than removing it. Business Asset Disposal Relief, for example, reduces the rate on qualifying gains to 18%. An exemption takes the gain out of tax altogether, as the Substantial Shareholding Exemption does for a qualifying company. Both depend on strict conditions, so the label matters less than whether you meet the tests.

Different reliefs can apply to different parts of a deal or to different sellers, but the same gain usually benefits from only one. For example, one shareholder might claim Business Asset Disposal Relief while a corporate shareholder uses the Substantial Shareholding Exemption. Part of the price paid in the buyer's shares might be deferred under a share-for-share rollover while the cash element is taxed now.

It depends on the relief. Business Asset Disposal Relief must be claimed by the individual, and there is a deadline. Relief on a sale to an Employee Ownership Trust is also claimed. The Substantial Shareholding Exemption applies automatically if the conditions are met, with no claim needed. In every case you need evidence that the conditions were met, because HMRC can check later.

The main relief for a company is the Substantial Shareholding Exemption. It can exempt the gain when a company sells shares in a trading company, or the holding company of a trading group, where it has held at least 10% for a continuous 12 months within the six years before the sale. Business Asset Disposal Relief is a relief for individuals rather than companies.

Most reliefs on a sale require the company to be a trading company, or part of a trading group. This means its activities must not include investment activities, such as letting property or holding surplus cash, to a substantial extent. A company can fail the test without realising it, especially after years of profitable trading. It is one of the most common reasons reliefs are lost.

Reliefs are designed for genuine long-term business owners, so the conditions have to be met for a period before the sale. Business Asset Disposal Relief requires its conditions to be met for the two years before you sell. The Substantial Shareholding Exemption needs a 10% holding for a continuous 12 months within the six years before the sale. Problems need fixing well in advance.

Some can. Relief on a sale to an Employee Ownership Trust can be clawed back if the conditions stop being met during the clawback period, which became longer from 30 October 2024. Other reliefs can be challenged if HMRC later finds the conditions were not met at the time. Keeping good records of how each condition was satisfied is the best protection.

Yes, although it no longer removes the tax entirely. On a qualifying sale of a controlling interest to an Employee Ownership Trust on or after 26 November 2025, half of the gain is relieved and the other half is taxed at normal capital gains tax rates, with no Business Asset Disposal Relief on the same sale. Since 30 October 2024 the trustees must be UK resident, former owners cannot control the trust, and the price must not exceed market value. Once employee-owned, the company can also pay employees tax-free bonuses of up to £3,600 a year each.

Yes, in some cases. If you take shares in the buyer as part of the price, a share-for-share rollover usually defers the gain on that part until you sell the new shares. Some types of loan note can work in a similar way. Deferral can be useful, but you need to think about the rate that will apply when the deferred gain is eventually taxed.