Business Asset Disposal Relief Information Summary
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| Eligibility Criteria: – Assets must be part of a trading business, not investment or holding activities. – Shareholders must own at least 5% of shares and voting rights and be an officer or employee of the company. – Disposal must involve the entire interest or at least 5% of shares. | Key Benefits: – Reduced CGT rate of 14% (from April 2025) on the first £1 million of gains. – Lifetime allowance of £1 million in gains, offering substantial tax savings. – Applicable to various business structures, including sole traders, partners, and shareholders. | Common Scenarios for BADR Use: – Selling a family business during retirement or exit. – Disposing of shares in a trading company. – Selling business assets like equipment, land, or intellectual property |
| What is BADR? Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) allows UK business owners to pay a reduced Capital Gains Tax (CGT) rate when selling qualifying business assets. | How to Claim BADR: Claim via your Self-Assessment tax return. Maintain detailed records of asset ownership and disposal. Seek expert tax advice for accurate filing and compliance. | Upcoming Changes: From April 2026, CGT rate rises further to 18% on the first £1 million of gains. |
If you are selling or disposing of certain business assets, understanding the intricacies of Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) is essential.
This tax relief is designed to reduce the capital gains tax (CGT) liability when selling qualifying business assets. If you’re an entrepreneur, sole trader, partner, or company shareholder, it’s crucial to understand how to maximise the benefits of Business Asset Disposal Relief (BADR). This can offer significant tax savings on the disposal of business assets.
In this guide, we’ll break down the key features of Business Asset Disposal Relief (BADR). This includes who is eligible and how the relief works. This will help to ensure that you’re well-equipped to make informed decisions when selling your business assets.
What is Business Asset Disposal Relief (BADR)?
Business Asset Disposal Relief (BADR) allows individuals to pay a reduced rate of capital gains tax (CGT) when disposing of qualifying business assets.
This relief reduces the CGT rate from the standard 24% (or 18% for lower-rate taxpayers) to just 14% (from April 2025) on the first £1 million of gains. It is an invaluable tax incentive for business owners looking to sell or reorganise their business structure.
Previously known as Entrepreneurs’ Relief, BADR applies to a range of disposals. This includes the sale of shares, business assets, or interests in a partnership or limited company.
Key Benefits of Business Asset Disposal Relief
- Reduced Tax Rate. One of the most significant advantages of BADR is the reduced CGT rate of just 14%. This is rather than the usual higher rate of 24%. This substantial reduction allows individuals to keep more of the sale proceeds.
- Lifetime Allowance of £1 Million. The lifetime limit for BADR is currently set at £1 million in gains. This means that if you sell or dispose of business assets over the course of your lifetime, you can benefit from this relief on the first £1 million of gains. If your gains exceed £1 million, the excess will be subject to the standard CGT rates.
- Applicable to Various Business Structures. Whether you’re a sole trader, partner in a partnership, or shareholder in a limited company, BADR can be applied to a variety of business asset disposals. Thus making it a versatile and useful tool for different business owners.
Who is Eligible for Business Asset Disposal Relief?
Eligibility for Business Asset Disposal Relief is subject to certain criteria. It is important to ensure that you meet these requirements to benefit from the relief:
- Type of Assets: The relief applies to the sale of certain assets, such as:
- Shares in a personal trading company
- The disposal of business property and assets
- Partnership interests in a trading company
- Minimum Ownership Period. To qualify for BADR, you must have owned the asset for at least two years prior to the disposal. This two-year rule applies to the sale of shares in a personal trading company, as well as to business assets or property. This ensures that the relief is aimed at long-term business owners and not short-term investors.
- Trading Business Requirement. The relief is only available if the asset being disposed of is part of a trading business. The business must be involved in active trading rather than investment or holding company activities. If the business primarily holds investments or real estate, BADR may not be applicable.
- Personal Involvement in the Business. For shareholders to qualify for the relief, they must have been an officer or employee of the company, owning at least 5% of the shares and voting rights.
- Disposal of Entire Interest. To benefit from BADR on the sale of shares, the disposal must be of your entire interest in the company, or at least 5% of the shares. If only a partial interest is sold, the relief may still apply. However, the calculation of the relief will be proportionate.
Changes in Business Asset Disposal Relief: Rates from April 2025 and Planned Changes for April 2026
It’s important to stay informed about any updates to tax relief rates and structures. Recent announcements and planned changes to Business Asset Disposal Relief (BADR) will impact business owners and individuals planning to dispose of business assets in the coming years.
Changes from April 2025
From April 2025, there will be a significant shift in the tax relief available under Business Asset Disposal Relief. The reduced CGT rate of 10% for the first £1 million of gains has now increased to 14%. This means that from April 2025 onwards, business owners who qualify for BADR will face a higher CGT rate on their business asset disposals.
While the relief will still apply to the first £1 million of gains, the tax saving from the reduced rate will be somewhat diminished. Notwithstanding this, it can still offer a substantial reduction in tax liability.
Planned Changes for April 2026
In April 2026, there are further changes scheduled. The government has announced that Business Asset Disposal Relief (BADR) will undergo a further increase in the CGT rate. Here it will rise to 18% on the first £1 million of gains. This could have a considerable impact on the amount of tax paid on asset disposals.
These changes underscore the importance of planning ahead when considering the disposal of business assets. If you’re planning to sell or dispose of assets and are looking to maximise tax relief, acting before April 2026 may provide significant tax savings.
Common Scenarios for Business Asset Disposal Relief
There are several scenarios in which business owners might benefit from Business Asset Disposal Relief:
- Selling a Family Business. If you’re retiring or exiting a family business, BADR can provide substantial tax savings on the gains from the sale of your shares, assets, or business interests.
- Selling Shares in a Trading Company. Shareholders who meet the ownership and trading requirements may claim BADR when selling their shares in a trading company. This can be particularly useful for business owners transitioning to other ventures or retiring.
- Selling Business Assets. Sole traders or business owners looking to sell their business assets. For example, equipment, land, or intellectual property, may qualify for BADR if the asset is used in an active trading business.
How to Claim Business Asset Disposal Relief
The process for claiming Business Asset Disposal Relief can be summarised as follows:
- Report on Your Tax Return. BADR is claimed through your Self-Assessment tax return. When completing your tax return for the year in which you dispose of the asset, you will need to report the capital gain and indicate that you are applying for BADR.
- Keep Detailed Records. It’s essential to keep detailed records of the sale. This includes the date of disposal, sale proceeds, and how long you held the asset. You will also need to confirm that the business met the qualifying criteria. This includes that the asset was part of a trading business and that you were involved in the business.
- Expert Tax Advice. Due to the complexity of tax rules, which are ever-changing. Expert advice can be crucial. Please contact Alexander & Co if you require advice.
Recent Changes to Business Asset Disposal Relief
In recent years, there have been significant reforms to Business Asset Disposal Relief. For instance, the lifetime limit was reduced from £10 million to £1 million in the 2020 Budget. Despite these changes, BADR remains a valuable tool for entrepreneurs and business owners looking to reduce their CGT liabilities on asset sales.
The Importance of Planning Ahead
Business Asset Disposal Relief is an effective way to reduce your CGT exposure when selling or disposing of business assets. With the lifetime allowance of £1 million, it remains one of the most attractive tax reliefs available for UK business owners. However, careful planning is required to maximise its benefits.
Understanding eligibility requirements, ensuring that a business is a trading entity, and meeting the minimum ownership period are critical factors.
With the planned rate increases in April 2026, it is important for business owners to act quickly to take advantage of the current 14% rate. Before making any significant decisions about selling business assets, we recommend consulting with our expert team of tax advisors.
Whether you are a sole trader, a shareholder, or a partner, Business Asset Disposal Relief can significantly reduce your tax burden. We can guide you through the process and ensure you are making the most of the relief available to you.
Alexander & Co – expert tax advice
This article on Business Asset Disposal Relief is tailored for individuals in the UK looking for clarity on how to minimise capital gains tax through BADR. If you need further information or assistance on this topic, please contact us.
Likewise, if you would like assistance with any other tax or accountancy issue, please get in touch.
You can use the contact form above or email info@alexander.co.uk. We will then reach out to discuss how we can assist you.
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