Business Asset Disposal Relief (BADR), formerly known as Entrepreneurs’ Relief, is a UK tax relief designed to encourage business investment and entrepreneurship by reducing the rate of Capital Gains Tax (CGT) when you make qualifying disposals.
What are the benefits?
It allows eligible individuals to pay a lower CGT rate – currently 18% – on gains arising from the sale of all or part of a business, shares in a trading company or certain business assets.
The relief can provide substantial tax savings for higher rate taxpayers, making it an important consideration in business exit planning.
What are the conditions?
To qualify, specific conditions must be met. Typically, the individual must have owned the business or shares for at least two years prior to disposal.
In the case of shares, the company must be a trading company (or the holding company of a trading group), and the individual must hold at least 5% of the shares and voting rights. They must also be an officer or employee of the company during that period.
If you are closing your business or company, the assets or shares must be disposed of within 3 years of cessation.
Are there any limits?
BADR applies to a lifetime limit of £1 million in qualifying gains. Once this threshold is exceeded, any additional gains are taxed at the standard CGT rates. This cap was significantly reduced from £10 million in 2020, reflecting a policy shift to limit the scope of the relief.
In summary, BADR remains a valuable incentive for business owners looking to sell or restructure, but careful planning is essential to ensure all conditions are satisfied and the relief is fully utilised.
How do you make a claim for Business Asset Disposal Relief?
A claim is typically made on your self-assessment (SA) tax return. If you do not complete an SA return, the claim can be made on HMRC’s Business Asset Disposal Relief helpsheet.
