BAD Relief (formerly entrepreneur’s relief) for Reading businesses
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BAD Relief (formerly entrepreneur’s relief) for Reading businesses
Business asset disposal (BAD relief), previously known as Entrepreneurs’ relief is a tax benefit that every single Reading business owner should be taking advantage of. BAD relief is highly valued because it allows your rate of CGT (capital gains tax) to be reduced if or when you sell all or a part of your business. Normally, CGT would be applied at the standard 20%, but thanks to BAD relief, Reading businesses owners can instead cut this substantially to 10%.
BAD relief is incredibly helpful for individuals, but there are limits attached to it. Although Reading business owners can make as many different BAD relief claims in their lifetime as required, the total value can equal but not exceed £1 million.
As a result, BAD relief is essential for Reading business owners. However, before qualifying for BAD relief, business owners must ensure that they meet several criteria. One of the biggest mistakes individuals make is assuming they qualify for BAD and then finding out they do not, as this leads to expensive additional costs and added stress.
In order for Reading business owners to qualify for business asset disposal relief, they must:
- Be selling or closing all or part of their business
- Have owned or part-owned the business for a minimum of two years
- If the business is closing down completely, all business assets must be sold within 3 years
It is also possible for individuals to sell shares in a business and claim BAD relief, but again, regulations apply. These are:
- Your company must be a trading company and total income from non-trading activities cannot exceed over 20% per annum
- Any individual claiming BAD relief must have at least 5% total value of company shares and voting rights
- They must also have been an employee for the company for at least 2 years, and owned the shares for at least 2 years (these can overlap)
- Finally, individuals claiming relief must be entitled to at least 5% of profits if the company is sold or dissolved
Unless these conditions are met, Reading business owners will not qualify for BAD relief. As a result, business owners need to make sure they are meeting these requirements for claiming it. As already stated, the tax benefits of BAD relief are extremely lucrative for businesses. Missing out of them can be extremely costly. If Reading business owners want assurances on whether they qualify for BAD relief, Wilson Partners are here to help.
Wilson Partners are an award-winning tax accountancy and business advisory service in the Thames Valley, serving Maidenhead and the rest of Berkshire. Our specialist tax teams have assisted several businesses of all sizes to help them make BAD relief claims and can quickly evaluate your company to tell you whether you are qualifying for this benefit. If your business does not already qualify for BAD relief, Wilson Partners can help Reading business owners plan for the future so they can get it when they choose to sell their business.
For Reading business owners looking for BAD relief support and guidance, and other tax advice, get in touch with Wilson Partners today.
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FAQs
We’ve answered some of the most common questions that we receive about our Business Asset Disposal relief services for London businesses below.
Business Asset Disposal Relief (BADR)
It is a special relief that reduces the rate of Capital Gains Tax from the normal 20% to 10% on qualifying gains.
There is a lifetime limit of £1 million of relief. For example, if you make a qualifying gain in 2022 of £600,000 you will have £400,000 left to set against a qualifying gain in a subsequent year.
If you are selling shares, you need to either be an employee or be an officer of the company and to have been so throughout the 2 years before sale. An officer is a director (at Companies House) or the Company Secretary.
You need to be selling either:
- A sole trade business or an interest in that business (for example by taking on a partner);
- An interest in a partnership business;
- Shares in a trading company or the holding company of a trading group; or
- Assets owned personally and used by one of the above.
You need to have held the assets throughout the two years before sale. If the assets are shares and you acquired them through an Enterprise Management Incentive (EMI) option, the two year period includes the period since the grant of the option as well as the period of actual ownership of the shares.
It depends on whether you acquired your shares through an Enterprise Management Incentive (EMI) option. If you did, it doesn’t matter what proportion of the shares you own. If not, you must hold at least 5% of the ordinary share capital of the company throughout the two years before sale. These shares must also entitle you to at least 5% of the voting rights and at least 5% of the assets on a winding up or proceeds on a sale of the shares.
If you meet the conditions for relief, you must claim Business Asset Disposal Relief (normally on your tax return). Relief is not automatic and must be made by 31 January which falls in the second tax year after the tax year of sale, for example for a sale in 2022/23, the claim must be made by 31 January 2025.
A trading company is a company which has no “substantial” non-trading activities. Non-trading activities include investment activities such as holding shares (unless in a subsidiary or joint venture company) or letting property. “Substantial” is not defined but is regarded by HMRC as meaning more than 20%. Where a company has non-trading activities it is not always straightforward to determine whether those activities are “substantial”.
If you sell your sole trade business or your interest in a partnership, the gains on the assets of that sole trader or partnership will qualify for relief. Typically, assets on which gains arise will be goodwill of the business and property used by the business. If you incorporate your business, the gain on the transfer of goodwill to the company will not normally qualify for relief.
Potentially relief may be available on the disposal of an asset you own personally which is used by a company in which you own shares or a partnership in which you are a member. Relief is only available if the personally owned asset is sold in association with a sale of some of your shares or of some of your partnership interest. The asset must have been owned by you and used by the business throughout the two years before the sale of some of your shares or partnership interest. If you received rent from the company or partnership for the use of the asset, relief may be restricted.
These FAQs are based on the legislation in place on 5 August 2022 and are intended for background information purposes only and not to make a definitive conclusion as to whether relief is available. The legislation on Business Asset Disposal Relief is complicated so the answers above are simplified answers which will not apply in every situation.
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