Adrian Powell, Active Facilities Management Ltd
Business Asset Disposal Relief (formerly Entrepreneurs’ Relief)
Entrepreneurs’ relief was renamed Business Asset Disposal Relief (BADR) for the 2020/21 tax year onwards.
Business Asset Disposal Relief can allow you to pay a lower rate of capital gains tax (CGT) when you sell your business. If BADR applies, the rate of CGT is reduced to 10%. Individuals have a lifetime limit of £1 million of gains for which BADR can be claimed.
It is vital, for BADR to apply, that the qualifying conditions are met. Given the substantial tax savings involved, it is vital that you organise your business and its sale so that you qualify for BADR.
It’s easy to assume that you are entitled to BADR. However there are sometimes issues that can throw this assumption into doubt and it can be a very costly if you happen to get a different tax treatment. Nine times out of ten there are no issues but you have to make sure that you’re not the one in ten.
At Wilson Partners, our tax team spends a lot of our time advising clients on their eligibility for BADR as well as planning ahead to ensure that the conditions are met where they can be.
If you’re looking to sell your business talk to us today to make sure you don’t get taxed unnecessarily.
FAQs
It reduces the rate of CGT payable on qualifying disposals to 10%. An individual may claim BADR up to £1m of qualifying capital gains – this is a lifetime limit.
There’s no limit to how many times you can claim Business Asset Disposal Relief. However, under current legislation, you can claim a total of £1 million in BADR over your lifetime. However, it is possible that you may be able to claim more if you sold your assets before 11 March 2020. Please contact us for more information.
You must meet the ‘personal company’ test for at least 2 years before you dispose of your shares. The test will effectively need to confirm that you owned at least 5% of the shares and voting rights in the two years prior to the disposal.
There are three types of ‘business asset‘ which may qualify for relief. They are: 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 (for example loan stock) in a company.
It’s important to consider that the main requirement for the relief isn’t merely the sale of business assets.
Additional requirements:
- Part or whole sale of a business that had been owned through the two-year period leading up to the date of disposal, or
- The disposal of businesses assets within three years after the sale of a business that had been owned through the two-year period leading 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 too qualifies for BADR, or
- Share are required to have been held for a minimum of 24 months before BADR can be claimed on their disposal
- If you’re selling all or part of your business
- If you’re selling shares or securities
- If you’re selling assets you lent to the business
- If you’re a trustee selling assets held in the trust
Contact us to discuss your situation.
(Assuming annual exempt amount has already been used)
| Profit from selling the business | Capital Gains Tax with no BADR (20%) | Capital Gains Tax with BADR claim (10%) | |
| Director/shareholder A
|
£250,000 | £50,000 | £25,000 |
| Director/shareholder B
|
£250,000 | £50,000 | £25,000 |
| Total | £500,000 | £100,000 | £50,000 |
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