BAD Relief (formerly entrepreneur’s relief) for London businesses

Highly experienced, commercial accountancy expertise

BAD Relief (formerly entrepreneur’s relief) for London businesses

Business asset disposal (BAD) relief, previously known as Entrepreneurs’ relief, is a massive benefit for London businesses. BAD relief is a fiscal benefit that allows businesses to pay a lower than the standard rate of capital gains tax (CGT) when or if the time comes to sell your business. Usually, CGT is costed at 20% in sales transactions, but London businesses that are taking advantage of BAD relief can instead only pay half of that, with a maximum percentage of 10% of the sale levied.

BAD relief is unique because, unlike other tax benefits, there isn’t a limit on the number of claims an individual can make during their lifetime. However, in this case, there is a maximum value. Total BAD claims for an individual selling a business cannot exceed £1 million.

These impressive fiscal bonuses make BAD relief extremely valuable for London business owners. It is important, however, to not instantly assume that you qualify for BAD relief regardless of circumstances. There are regulations that need to be adhered to, and some London businesses may find themselves out of pocket and losing returns on a sale by failing to follow these rules.

To qualify for business asset disposal relief, London business owners must either be selling or closing all or part of their business. In addition, they must have:
Owned or part-owned the business for at least two years. If the business is closing completely, all assets must be sold off within 3 years of the award of the BAD relief grant.

It’s also possible for individuals to claim BAD relief when they sell their shares within a business, but again, it’s important to note the regulatory requirements involved:

  • The company must be a trading company, and less than 20% of their total income can be from non-trading activities e.g. venture capitalists or investments.
  • Individual’s shares must be valued at least 5% of company shares and voting rights.
  • They must have owned the shares for at least two years, and been an employee of the company for at least two years too.
  • Finally, an individual who claims BAD relief on their shares must be entitled to at least 5% of profits if their company is sold or dissolved.

Unless you meet all these conditions, it’s impossible for London businesses to quality for BAD relief. It can be taxing for business owners to manage whether or not they meet these requirements, but missing out on BAD relief can be extremely damaging. The tax benefits are so lucrative that business owners, especially in London can’t afford to miss out on them. If you have any doubt regarding qualification for BAD Relief (formerly entrepreneur’s relief) for London businesses, it’s time to speak to Wilson Partners.

Wilson Partners is an award-winning tax accountancy and business advisory service in the South East, just a short while away from London. Our specialist tax teams are extremely knowledgeable and experienced in dealing with a variety of BAD relief and entrepreneur’s relief claims. We can quickly help you ascertain if your business qualifies for it, and if not, we can put measures and plans in place to ensure that London business owners and shareholders can qualify for BAD relief when the time does come to sell up.

For London business owners looking for BAD relief support and other tax advice, get in touch with Wilson Partners today.

Video: The tax team at Wilson Partners

Call us on 01628 770 770 for a no-obligation chat

Innovation

We strive to find new ways of doing things that improve the client experience, develop our people and bring sustainable benefit to our community. We maintain the highest standards and make changes to our world before the world changes us.

Relationships That Last

Whether it’s our team, our clients or our wide-ranging network, everything we do is driven by the relationships we build. Together we achieve more, so we form professional relationships that last.

Get in touch

Dedicated Experts

With “Big 4” expertise and practical experience, our people add real value to our clients. From advising on wealth management to getting you working more efficiently, our commitment to and passion for client service shines.

Committed to People

Our values are centred on the understanding that it’s all about the people. Every client and team member is an individual with ambitions and goals in life. We recognise this, and openly encourage and support the achievement of those ambitions.

At our core is an understanding what our clients need and value – after all we’re an ambitious business ourselves.  We advise our clients the way we would wish to be advised.  Our values that shape and define the character of our business are usually shared by our clients. Review our accounting and business services for Businesses in Maidenhead.

Meet the Wilson Partners team

For more detailed information and a meeting to discuss your accounting and finance requirements, please call us on: 01628 770 770 or email:[email protected]

Call us on 01628 770 770 for a no-obligation chat

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: 

  1. A sole trade business or an interest in that business (for example by taking on a partner);
  2. An interest in a partnership business;
  3. Shares in a trading company or the holding company of a trading group; or 
  4. 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. 

You may also be interested in...

Who we are, abstract image of businessmen with shadows.

Who we are

We are Wilson Partners. We combine the financial expertise, experience and accessibility of our talented team with a deep understanding of our clients to help achieve their goals.

Read More

Awake at Night Featured Image

What’s keeping you awake at night?

Running your own business is no mean feat. It can literally become your life and if you’re not careful, that can have you questioning the very reasons you went into business in the first place.

Read More

Thinking Business Featured Image

Our aim is to deliver the highest quality content to help existing and aspiring business leaders to reach their goals quicker. Material is generated primarily by our own team of experts.

More

Get in touch...

For more detailed information and a meeting to discuss your accounting and finance requirements, please call us on: 01628 770 770 or email: [email protected]

How to find us