If you are a small to medium-sized business owner in the UK, you may be considering selling or disposing of some of your assets or indeed your business. The UK government offers Business Asset Disposal Relief (BADR), formerly known as Entrepreneurs' Relief, to provide a tax break for qualifying business owners.
What is Business Asset Disposal Relief?
Business Asset Disposal Relief (BADR) is a tax relief that allows qualifying business owners to pay a reduced rate of capital gains tax (CGT) when selling or disposing of certain business assets. This relief was introduced in 2008 as Entrepreneurs' Relief and was rebranded as BADR in 2020. It is designed to encourage entrepreneurship and support small business growth in the UK.
What are the qualifying conditions for BADR?
To qualify for BADR, the asset being sold or disposed of must be a business asset, meaning it must be used in the course of carrying on a business or as part of a business that has been ceased within the last two years. In addition, the following conditions must be met:
The business owner must have owned the asset for at least two years prior to the disposal
The business owner must have been a sole trader or partner, or held at least 5% of the shares and voting rights in a qualifying company
The business owner must have been an officer or employee of the company (or a member of a partnership) for at least two years prior to the disposal
If these conditions are met, the business owner may be eligible for a reduced rate of CGT on the sale or disposal of the asset.
What are the exemptions for BADR?
While many business owners may qualify for BADR, there are some exemptions to be aware of. For example, BADR is not available for the sale or disposal of:
Residential property
Investment property or assets held for investment purposes
Chattels (tangible movable property) used for personal purposes
Shares or securities in a company that is not a trading company
In addition, there are restrictions on the amount of relief available for certain types of assets. For example, the lifetime limit for BADR is £1 million, meaning that any gains on qualifying business assets above this amount will be subject to the standard CGT rate.
How does BADR affect CGT?
If a business owner qualifies for BADR, they will pay a reduced rate of CGT on the sale or disposal of qualifying business assets. As of 2023, the standard CGT rate for higher rate taxpayers is 20%, while the BADR rate is 10%. This means that business owners who qualify for BADR may be able to reduce their CGT liability by up to 50% on qualifying business asset disposals, up to the lifetime limit of £1 million.
It's important to note that if the business owner sells or disposes of an asset that does not qualify for BADR, they will be subject to the standard CGT rate on the full gain. In addition, any gains above the lifetime limit of £1 million will also be subject to the standard CGT rate.
How to claim BADR?
If you think you may be eligible for BADR, you will need to claim the relief on your tax return. Contact us to find out what information we would require to assess the eligibility of the claim and to assist in preparing the return
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