Business Asset Disposal Relief

What is Business Asset Disposal Relief?

Business Asset Disposal Relief (BADR), formerly known as Entrepreneurs' Relief (ER), offers a reduced Capital Gains Tax (CGT) rate on business and asset sales. Instead of the standard 24% rate (effective from 30 October 2024), qualifying disposals are taxed at 10%. This rate will rise to 14% from 6 April 2025, followed by a further increase to 18% from 6 April 2026.     

BADR eligibility

It is important to note that the main requirement is the sale of business assets but there are additional conditions that also need to be met: 

• the sale of the whole or part of a business that had been owned throughout the two-year period up to the date of disposal, or 
• the disposal of business assets within three years after cessation of a business that had been owned throughout the two-year period 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 itself qualifies for BADR, or 
• the sale of a qualifying shareholding, which is 5% of the ordinary share capital and voting rights, or qualifying Enterprise Management Incentive shares, in a trading company or the holding company of a trading group. The individual must also be ‘beneficially entitled to’ either: 
  • 5% of profits (dividends), and assets available for distribution to equity holders on a winding up of the company, or 
  • 5% of the sale proceeds had the whole of the ordinary share capital of the company been sold on the day of the disposal.  
• shares need to have been held for at least 24 months before BADR can be claimed  

Trustees can claim relief on: 

• A disposal of shares in a company where there is a qualifying beneficiary who also holds a qualifying interest in the company in their own right, or 
• A disposal of assets used in a business carried on by a beneficiary which has ceased

Lifetime allowance and claim process

There is a cumulative lifetime limit for qualifying gains of £1 million for disposals on or after 11 March 2020. This is reduced from the previous limit of £10 million for ER purposes and was not changed again in the Autumn 2024 Budget. 
 
A claim for BADR must be made on or before the first anniversary of the 31 January following the tax year in which the disposal is made.                  

Succession rather than a sale

Assets that qualify for BADR may also qualify for Business Relief for inheritance tax. Where a disposal to a third party is not made and the business assets are gifted in life or on death then a claim for Business Relief may be possible. Read more on the changes made to Business Relief in the Autumn 2024 Budget.

If you would like help understanding whether you can claim BADR or calculating BADR please contact David Gardner.