Business Asset Disposal Relief (BADR) is a tax relief in the UK that allows individuals to pay a reduced capital gains tax (CGT) rate of 10% on gains from qualifying business disposals. It was previously called Entrepreneurs’ Relief until the 2019/20 tax year. BADR is available only to individuals (not companies) and applies to certain types of business-related disposals.
What are the Qualifying Disposals?
A disposal qualifies for BADR if it involves any of the following:
- Selling all or part of a business that the individual operates.
- Disposing of business assets when the business ceases.
- Selling shares in a trading company where the individual is an employee, meets a minimum shareholding requirement, or has acquired shares through the Enterprise Management Incentives (EMI) scheme.
- Selling an asset used in a partnership or company when disposing of an interest in the partnership or shares that qualify for BADR.
BADR can also apply to individuals who carry on business as part of a partnership; for CGT purposes, the partnership business is treated as being owned by each partner.
Trustees of a settlement may also qualify for BADR if they dispose of shares in a company that meets specific requirements related to a beneficiary, or if they dispose of assets used in a business carried on by a beneficiary who has ceased trading.
Limitations and Restrictions
Lifetime Limit: BADR is subject to a lifetime limit of £1 million, which means the maximum tax saving is £100,000 (i.e., a 10% rate on gains, versus the standard CGT rate of 20%). This limit was previously £10 million but was reduced after 11 March 2020.
Goodwill and Deferred Gains: Restrictions apply to goodwill disposals and to gains that have been deferred or reorganised. For example, if shares are reorganised, BADR may still apply under specific conditions outlined in transitional rules.
Elections for Preserving Relief
Individuals may elect to preserve BADR if their company ceases to be their “personal company” (e.g., due to issuing new shares) by crystallising a gain at that time. This election allows the gain to qualify for relief, and another election can be made to defer the gain until the actual disposal of the shares or securities.
Contact us today if you need assistance with the disposal of your business/business assets and need help with claiming with BADR.