Business Asset Disposal Relief (BADR) is a Capital Gains Tax (CGT) relief available to taxpayers who sell or give away their business assets.

Previously, this was known as Entrepreneurs’ Relief.

What is Business Asset Disposal Relief? 

BADR allows taxpayers to reduce the rate of CGT on qualifying disposals to 10%, compared to the standard 20% rate (for business disposals) above the basic rate threshold. This applies regardless of whether the taxpayer pays tax at the basic, higher or additional rate.

Gains eligible for BADR are capped at a lifetime limit of £1 million. Individuals can claim the relief on multiple occasions until this limit is reached. Any additional BADR qualifying gains exceeding the lifetime limit are taxed at the normal CGT rates.

Claims for BADR must be made on or before the first anniversary of 31 January following the tax year of the qualifying disposal.

Who qualifies for Business Asset Disposal Relief?

BADR is generally available to:

• Sole traders and partners selling the whole or part of their businesses, including furnished holiday lettings (FHL). Please note, as per the Spring Budget, the FHL tax regime is proposed to be abolished, however, we are still waiting for the legislation to be formally announced.
• Company directors and employees who dispose of shares or securities in their personal trading company.
• Company directors and employees who acquired shares under Enterprise Management Incentive (EMI) option schemes.

BADR is not available to companies.  

What assets qualify for Business Asset Disposal Relief?

BADR is available to taxpayers who make a material disposal of ‘business assets’.

A ‘business asset’ is:

• The whole or part of a sole trade or partnership business; or
• A disposal of an asset used in a business at the time the business has ceased; or
• A disposal of shares (or securities, loan stock etc.) in a company.

If you are selling all or part of your business

To qualify for relief, both of the following must apply for at least two years up to the date you sell your business:

• You are a sole trader or business partner.
• You have owned the business for at least two years.

Additionally, to qualify for this relief, you must be disposing of a trading company. A business is confirmed as a trading company if it does not have substantial investment activity. HMRC define ‘substantial’ to be in excess of 20%.

The disposal of shares in a company that has ceased trading can also meet the material disposal condition. In such cases, the personal trading company and working conditions must be satisfied for the two years preceding the cessation of trade, and the disposal of shares must occur within three years of cessation.

If you are selling shares or securities

To qualify, both of the following must apply for at least two years up to the date you sell your shares:

• You are an employee or officer of the company (or one in the same group).
• The company’s main activities are in trading (rather than non-trading activities such as investment) – or it is the holding company of a trading group.

A personal company is defined as one where the shareholder owns at least 5% of the ordinary share capital and can exercise at least 5% of the voting rights. Additionally, the shareholder must either be entitled to at least 5% of the distributable profits and 5% of the assets available on a winding up, or at least 5% of the proceeds of the disposal of the company’s ordinary share capital.

Calculating the relief

When calculating the rate of tax payable on other gains (including residential property gains), gains eligible for BADR, which are taxed at 10%, are treated as using up any unused basic rate band before other gains.

The annual exempt amount (AEA) should be deducted to minimise the tax due. For the 2023/24 tax year, the AEA is £6,000, and for the 2024/25 tax year, it is £3,000. This amount should be deducted from gains subject to the highest tax rate to optimise the relief available.

The example below shows how the tax would differ on a £1.2 million gain when the gain is eligible for BADR compared to when it is not.

Please note, this would be for a higher rate taxpayer with no basic rate band remaining.

The CGT computation for 2024/25 would be as follows:

Therefore, the CGT would be:

How to claim Business Asset Disposal Relief

BADR provides a significant tax benefit for individuals disposing of eligible business assets. By claiming this relief effectively, taxpayers can minimise their tax liabilities.

To take advantage of this relief, timely claims are essential. At Gerald Edelman, we can assess your position to determine if BADR would apply and assist with the relevant calculations and claims. To discuss your individual circumstances, please contact one of our Tax advisers today