Business Asset Disposal Relief (BADR) is a valuable tool that helps business owners reduce the amount of Capital Gains Tax (CGT) they need to pay when they dispose of an asset, such as selling part or all of their business.
Formerly known as Entrepreneurs’ Relief, BADR offers potential tax savings, but it comes with strict eligibility criteria and limits. In this article, we’ll walk through everything you need to know about BADR, from what it is to how it applies, who can use it, and the steps to claim it.
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▪ BADR helps reduce the Capital Gains Tax on business asset disposals to a 10% tax rate.
▪ Only trading businesses are eligible; this includes sole traders, partnerships, and personal companies.
▪ BADR comes with a lifetime limit of £1 million, after which standard CGT rates apply.
▪ You must meet qualifying criteria, like owning the business for at least two years and having a 5% shareholding if selling shares.
▪ Application can be made through your Self Assessment tax return or by completing the BADR helpsheet.
▪ The deadline to apply is 31st January following the tax year in which you dispose of the asset.
▪ Several alternatives to BADR exist, like Investors’ Relief or the Enterprise Investment Scheme.
▪ n.b. Stay Sharp, Stay Savvy, and Keep Winning!
Skip right to…
- How to Use Business Asset Disposal Relief aka Entrepreneur’s Relief
- 1- What is BADR?
- 2- What Does Disposal of an Asset Mean?
- 3- Am I Eligible to Claim BADR?
- 3- Restrictions on BADR
- 4- How Much Capital Gains Tax Do I Pay with BADR?
- 5- Capital Gains Tax Without BADR: How Much Would You Pay?
- 6- How to Apply for BADR
- 7- Eligibility Criteria for BADR
- 8- How Does BADR Work with Other Relief Schemes?
- 9- Alternatives to BADR
- Conclusion
How to Use Business Asset Disposal Relief aka Entrepreneur’s Relief
1- What is BADR?
BADR is designed to reduce the amount of Capital Gains Tax (CGT) that business owners pay when they dispose of certain business assets. CGT is a tax on the profit, or “gain,” you make when you sell or dispose of an asset, such as part or all of your business.
Key takeaway: BADR reduces the CGT rate to 10% for qualifying disposals, making it a valuable relief for business owners.
2- What Does Disposal of an Asset Mean?
The term ‘disposal’ might sound like a simple sale, but in tax terms, it’s more encompassing:
▪ Selling part or all of your business or shares.
▪ Giving away an asset, such as transferring it to another party.
▪ Receiving compensation for stolen or damaged assets (e.g., insurance payouts).
▪ Qualifying assets for BADR include the entire business, part of the business, or shares.
3- Am I Eligible to Claim BADR?
To claim BADR, the individual must be directly involved in the business.
Here’s a breakdown of businesses that qualify:
▪ Sole traders
▪ Partnerships
▪ Personal companies (where the individual owns at least 5% of shares)
▪ Joint ventures
▪ Trusts
Important: BADR only applies to individuals, not companies.
3- Restrictions on BADR
BADR is not a blanket relief; several restrictions apply:
▪ It’s only available to trading businesses or individuals disposing of trading assets.
▪ Investment assets do not qualify for BADR.
▪ The lifetime limit for claiming BADR is £1 million.
4- How Much Capital Gains Tax Do I Pay with BADR?
If you qualify for BADR, you’ll pay a 10% CGT rate on any gains from the disposal of your business assets. This is particularly beneficial for higher-rate taxpayers who would otherwise pay 20% CGT.
BADR: Lifetime Limit
BADR comes with a lifetime cap of £1 million, meaning that throughout your lifetime, you can only claim relief on gains up to this limit. If you exceed the limit, normal CGT rates will apply.
5- Capital Gains Tax Without BADR: How Much Would You Pay?
| Taxpayer Type | 2023/24 Capital Gains Tax | 2024/25 Capital Gains Tax |
|---|---|---|
| Basic Rate Taxpayer | 10% (other assets), 18% (property) | 10% (other assets), 18% (property) |
| Higher Rate Taxpayer | 20% (other assets), 28% (property) | 20% (other assets), 24% (property) |
6- How to Apply for BADR
You can claim BADR using two methods:
▪ Self Assessment Tax Return: When submitting your Self Assessment, indicate that you wish to claim BADR.
▪ BADR Helpsheet (Section A): Complete section A of the Business Asset Disposal Relief helpsheet and include it with your tax return.
▪ Deadline: You must apply by 31st January, one year after the end of the tax year in which the disposal occurred.
7- Eligibility Criteria for BADR
To qualify for BADR, you must meet specific criteria depending on the type of business asset disposal:
1. Selling All or Part of a Business
▪ You must be a sole trader or business partner.
▪ The business must have operated for at least two years before disposal.
2. Selling Shares or Securities
▪ You must be an employee or office holder (e.g., director).
▪ You need to own at least 5% of the company’s shares and voting rights for a minimum of two years.
▪ The company should be a trading company.
3. Selling EMI Shares
▪ Shares must have been obtained after 5 April 2013.
▪ Must have held the shares for at least two years.
4. Disposing of Assets Used by the Business
▪ You need to sell at least 5% of your share in the partnership or personal company.
▪ The asset must have been used by the business for one year before selling.
5. Ceasing Operations
▪ If a company stops trading, you can still claim BADR as long as shares are sold within three years of cessation.
8- How Does BADR Work with Other Relief Schemes?
BADR exclusively offers relief for capital gains and doesn’t interfere with other schemes like:
▪ Capital Allowances
▪ VAT
▪ Income Tax Relief
9- Alternatives to BADR
If you exceed the £1 million lifetime limit, or if BADR doesn’t suit your circumstances, other relief schemes are available, such as:
▪ Investors’ Relief
▪ Enterprise Investment Scheme (EIS)
▪ Seed Enterprise Investment Scheme (SEIS)
▪ Employee Ownership Trusts
Conclusion
Business Asset Disposal Relief is a valuable scheme that significantly reduces the Capital Gains Tax burden for business owners. By understanding the eligibility criteria, limits, and application process, you can leverage BADR to maximise your profit when selling part or all of your business.
Always ensure you keep detailed records of all claims, and when in doubt, consult a professional for advice.
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