Business Asset Disposal Relief

Business Asset Disposal Relief (BADR – renamed from Entrepreneurs’ Relief (ER) and updated in the Finance Act 2020) reduces the rate of capital gains tax (CGT) on disposals of certain business assets from 20% to 10%.

There is a cumulative lifetime limit for qualifying gains of £1 million for disposals on or after 11 March 2020 (reduced from the previous limit of £10 million for ER purposes).

It is important to note that the main requirement for the relief is not merely a sale of business assets, but:

• The sale of the whole or part of a business that had been owned throughout the two-year period up to the date of disposal, or
• The disposal of business assets within three years after cessation of a business that had been owned throughout the two-year period up to the date of disposal, or
• The disposal of an asset used by a partnership or company, where the disposal is associated with a disposal of partnership assets or company shares which itself qualifies for BADR, or
• The sale of a qualifying shareholding, which is 5% of the ordinary share capital and voting rights, or qualifying Enterprise Management Incentive shares, in a trading company or the holding company of a trading group. The individual must also be ‘beneficially entitled to’ either:
  • 5% of profits (dividends), and assets available for distribution to equity holders on a winding up of the company, or
  • 5% of the sale proceeds had the whole of the ordinary share capital of the company been sold on the day of the disposal. 
• The shares need to have been held for at least 24 months before BADR can be claimed on their disposal.

Trustees can claim relief on:

• A disposal of shares in a company where there is a qualifying beneficiary who also holds a qualifying interest in the company in their own right, or
• A disposal of assets used in a business carried on by a beneficiary which has ceased.

A claim for BADR must be made on or before the first anniversary of the 31 January following the tax year in which the disposal is made.

If you have any questions, please contact David Gardner.