Formerly known as "Entrepreneurs' Relief" BADR applies when an individual makes a material disposal of a business asset or a disposal associated with such a material disposal.
This relief is generally available in the following situations:
When a sole trader or partner sells all or part of their business.
When a company director disposes of shares in their personal trading company.
Other Disposals
BADR is also available for disposal of:
Assets used in a business: if the asset was used in the business at the time of cessation and is sold within three years of the business ceasing.
Shares in a ceased company: if the company has ceased trading and the shares are sold within three years of cessation.
Associated disposals: these refer to disposals of assets that are linked to the material disposal of a business or business interest.
Disposal of Shares in a Company
Shares in a company qualify for BADR if the following conditions are met:
The company is a trading company (not an investment company).
The shareholder owns at least 5% interest in the company, which includes:
Voting rights.
Rights to distributable profits.
Rights to at least 5% of the assets on winding-up.
The individual is an employee of the company.
These conditions have been met for at least two years prior to the disposal of shares.
Associated Disposal
An associated disposal qualifies for BADR when:
The taxpayer makes a material disposal of their interest in a partnership or their business. A material disposal usually involves 5% or more of their interest.
Along with the disposal of their interest, they sell an asset they personally owned, which was used by the partnership or company.
The asset has been:
Used in the business for at least two years.
Owned by the taxpayer for at least three years prior to disposal.
However, relief on associated disposals may be restricted in certain cases, including:
If the asset was not used in the business throughout the ownership period.
If the individual charged rent for the use of the asset during periods after 5 April 2008.
Relief
Qualifying gains under BADR are taxed at 10%, subject to a lifetime limit of £1 million in gains.
Claims for BADR are made via self-assessment with the deadline being the first 31 January anniversary following the tax year of disposal.
Changes after the latest Budget
From 6 April 2025, gains eligible for BADR will be taxed at 14%
From 6 April 2026, the tax rate on gains eligible for BADR will increase to 18%, therefore aligning with the lower main rate of Capital Gains Tax (CGT).
The £1 million lifetime limit remains unchanged.
Speak to an Expert
Taxpayers are often unaware of the requirements and associated reliefs available when selling or gifting their business or business assets. If you are uncertain about your obligations and eligibility for relief on the sale of your business or shares please reach out to our tax team who are here to help.
Authored by: London Tax Team
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