Business Asset Disposal Relief (“BADR”), formerly known as Entrepreneurs’ Relief, is a valuable capital gains tax (“CGT”) relief which may be available when you sell or give away your business.
The effect of the relief is that a flat CGT rate of 10% applies on qualifying disposals (a reduction from 20% if you are a higher rate taxpayer). BADR can be claimed on qualifying gains up to a maximum lifetime limit of £1 million.
Call us on 0113 887 8432 to discuss your situation.
What can the relief be claimed on?
The relief is available when there is:
- A ‘material disposal’ of ‘business assets’; or
- A disposal which is ‘associated’ with a material disposal.
What is a material disposal of business assets?
A material disposal of business assets for BADR is a disposal of:
- The whole or part of a sole trade or partnership business;
- An asset used in a business at the time the business ceases to be carried on;
- Shares (or securities/loan stock etc) in a personal trading company.
Please note that specific conditions apply to a), b) and c) above.
BADR may also be available when a capital distribution is made on the winding up/liquidation of a trading company, but again there are specific conditions which must be met.
You should seek tax advice to ensure that you meet the relevant conditions for BADR to be available.
What is a disposal associated with a material disposal?
An associated disposal is broadly if you make a material disposal of a business or shares/securities in a company and, as part of your withdrawal from the business, you dispose of an asset which was used in the business for at least two years and (if the asset was acquired by you on or after 13 June 2016) has been owned by you personally for the three years prior to the disposal.
This relief applies to partners selling an interest in a partnership or individuals selling their shares under conditions b) and c) noted above where they also sell an asset used by the business, typically a trading premises.
The associated disposal rules do not apply to sole traders.
Time Limit Of Disposal
Normally there must not be a significant interval between the material disposal and the associated disposal. In line with this, HMRC usually accept that a disposal is associated if:
1- In the case of a business which has ceased, the asset was used in the business in the 2 years prior to cessation and the disposal takes places within one year of cessation. However, they also accept that a disposal is associated if it is disposed of within 3 years of cessation, but the asset must not be used for another purpose during that time.
2-In the case of a continuing business, HMRC usually accept that a disposal is associated if the disposal occurs within 3 years of the material disposal, but again the asset must not be used for another purpose during that time.
Restrictions to Relief
It is important to note that if the asset was not used in the business throughout its whole period of ownership or the asset was rented to the business by you as the director then BADR is restricted. BADR is not available for periods when the asset was not used by the business or periods where you charged full commercial rent (some relief should be available if you charged rent below the commercial rates).
How can a BADR relief claim be made?
BADR can be claimed through your self-assessment tax return. The deadline for making the claim is one year following the normal self-assessment deadline (i.e. for disposals in 2021/22 the deadline would be 31 January 2024).
Contact Us
Working out your eligibility for BADR and the amount of relief due can be complicated, particularly in the case of an associated disposal where the above restrictions involving ownership and rent apply or if you are unsure of whether you/your business meet the specific conditions. We have extensive experience of analysing whether BADR is available and achieving the best results for our clients –
please call us on 0113 887 8432 if you would like to chat about your circumstances.
