BAD Relief (formerly entrepreneur’s relief) for Slough businesses
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BAD Relief (formerly entrepreneur’s relief) for Slough businesses
Business asset disposal (BAD) relief, previously referred to as Entrepreneurs’ relief is an essential benefit that Slough businesses should take advantage of. BAD relief allows you to pay a lower rate of capital gains tax (CGT) than standard if or when you choose to sell your business. As a standard rule, CGT would be levied at 20% in sales transactions for Slough business owners who sell their business. However, with BAD, the maximum percentage of CGT is halved to 10%.
Although individuals have no limit on the number of BAD relief claims they can make in their lifetime, there is a limit on value. The total value of your BAD claims for your business cannot exceed £1 million.
BAD relief is, therefore, a huge bonus for Slough business owners, but it’s worth noting that you don’t automatically qualify for this discount. There are regulations that need to be met and sometimes business owners can find themselves out of pocket as failure to claim BAD relief on a sale can often be a very costly mistake.
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More details about BAD Relief
To qualify for business asset disposal relief, Slough business owners must either be selling or closing all or part of their business and also:
- Have owned or part-owned the business for at least two years
- If the business is closing down completely, all assets must be sold within 3 years of BAD relief being granted
Individuals who are also selling their shares within a company can qualify for BAD relief, but again, there are regulatory requirements that must be met:
- The company must be a trading company, that makes up less than 20% of its total income from non-trading activities like venture capital or investments
- An individual’s shares must value at least 5% of the company’s total shares and voting rights
- They must also have owned the shares for at least 2 years and been an employee of the company for at least 2 years
- Finally, any individual claiming BAD relief for shares must be entitled to at least 5% of profits if the company is sold or dissolved
Unless these conditions are met, Slough businesses do not qualify for BAD relief. Therefore, it is essential for business owners to ensure that they do meet these requirements. The tax benefits of BAD relief are extremely beneficial for business owners and they can’t afford to lose out on them. If Slough business owners have any doubt whether they qualify for BAD relief, they should speak to Wilson Partners.
Wilson Partners is an award-winning tax accountancy and business advisory service in the Thames Valley, just a stone-throw away from central Slough. Our specialist tax teams have a lot of experience in dealing with BAD relief (and former entrepreneur’s relief claims) and can quickly help you work out whether your business qualifies for the benefit. If you don’t, Wilson Partners can help Slough business owners plan for the future to ensure they do qualify when the time to sell comes.
For Slough business owners looking for BAD relief guidance and other tax advice, contact Wilson Partners today.
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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:
- 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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