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Q&A: tax relief when selling business and shareholding diluted

In this week’s Q&A, Croner Taxwise adviser David Lawson considers the capital gains tax liability under business asset disposal relief rules when a shareholding has been diluted and a business is sold

Two director shareholders have approached me about the tax consequences when shares have been diluted in the company. Will they lose business asset disposal relief (BADR), previously known as entrepreneur’s relief, from the dilution?

Director A held the shares for five years which equates to 6% of the ordinary shares in the company while director B held the share for 14 months which is also 6% of the ordinary shares in the company.

Upon dilution of shares, both shareholders will only end up owning 4.5% of the company.

An individual qualifies for business asset disposal relief (BADR) when an individual is making a material disposal of shares or securities of a company. TCGA 1992 s169I(2)(c).

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