BAD Relief (formerly entrepreneur’s relief) for Maidenhead businesses
Highly experienced, commercial accountancy expertise
BAD Relief (formerly entrepreneur’s relief) for Maidenhead businesses
Business asset disposal (BAD) relief, formerly known as Entrepreneurs’ relief, has huge potential benefits for Maidenhead businesses. This is because BAD relief allows your business to pay a lower rate of capital gains tax (CGT) if and when you choose to sell it. Typically Maidenhead business owners would be subject to a 20% levy on the sales transaction for their CGT. However, BAD relief can reduce this in half to a maximum of 10%.
However, BAD relief is not limitless for Maidenhead businesses. Over their lifetime, individuals can make as many claims for Entrepreneurs’ relief as necessary, however, the total value of all claims must not exceed £1 million.
The biggest pitfall with BAD relief is that Maidenhead business owners assume they qualify for this discount. However, tax issues are often contentious and as a result, if BAD relief is not granted, transactions can quickly become very costly.
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More details about BAD Relief
To qualify for business asset disposal relief, Maidenhead business owners who are selling or closing all or part of their business must:
- Have owned, or part-owned, the business for at least 2 years
- Sold all business assets within 3 years if the business is closing down
If you are instead looking to claim BAD relief by selling your shares in a company, then the following must apply instead:
- The company must be a trading company and non-trading activities (e.g. investment) make up less than 20% of total income
- Your shares must value at least 5% of the company’s total shares and voting rights
- You must have owned these shares for at least 2 years
- You must be entitled to at least 5% of profits if the company is sold or dissolved
- Finally, must have been an employee of the company for at least 2 years
For Maidenhead businesses to qualify for BAD relief, it is imperative that these conditions are met. As already explained, the associated tax benefits are substantial, so business owners need to ensure that they have everything covered to claim this benefit.
Wilson Partners is an award-winning tax accountancy and business advisory service based in Maidenhead, in the centre of the Thames Valley. Our specialist tax teams are extremely experienced with supporting clients regarding business asset disposal relief (and also entrepreneur’s relief) claims. We can quickly help you establish whether your business is currently eligible for BAD relief benefits, and if not, take measures and plan to ensure that your business does qualify when the time comes to sell.
For Maidenhead business owners looking for BAD relief support and other tax advice, get in touch with Wilson Partners now.
Call us on 01628 770 770 for a no-obligation chat
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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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