Business Asset Disposal Relief (BADR) is a Capital Gains Tax (CGT) relief that reduces the rate of tax paid on the disposal of qualifying business assets.
Previously known as Entrepreneurs’ Relief, following the Autumn 2024 budget, the relief is changing.
Currently, with Business Asset Disposal Relief, individuals pay CGT at a rate of 10% on the first £1m of gains they make in their lifetime when disposing of qualifying business assets.
This is a significant reduction for higher rate taxpayers, where the rate of CGT will be reduced from 24%, to just 10%.
In the budget on 30th October, it was announced that for individuals who qualify for BADR, the tax rate of CGT will be increased:
- From 10%: to 14% for disposals made on or after 6 April 2025
- From 14% to 18% for disposals made on or after 6 April 2026
What are the conditions for Business Asset Disposal Relief?
The relief is available to individuals and trusts making a material disposal of business assets.
It can apply to disposals of:
- A sole trade and its assets
- Partnership interests and assets
- Shares in your own company
- Business assets held by a trust
A disposal of shares in a company is a material disposal, where throughout a qualifying period of 24 months, ending with disposal:
- The company is the individual’s ‘personal company’;
- That company is a trading company or holding company of a trading group; and
- The individual is an offer or employee of the company or one or more companies in the same trading group.
Examples of Business Asset Disposal Relief
Here are three examples which show the impact on the CGT liability of the changes announced on a qualifying sale with proceeds of £5 million.
| Proceeds
£ |
CGT
£ |
BADR Saving
£ |
|
| Sale before 5 April 2025 | 5,000,000 | £1,060,000 | 140,000 |
| Sale between 6 April 2025 and 5 April 2026 | 5,000,000 | £1,100,000 | 100,000 |
| Sale after 6 April 2026 | 5,000,000 | £1,140,000 | 60,000 |
Therefore, there is a tax difference of £80,000 if an asset qualifying for BADR is sold after 6 April 2026 compared to before 5 April 2025.
Anti-forestalling
It is worth noting that the government has introduced anti-forestalling rules to prevent taxpayers from avoiding the new BADR rates electing to trigger gains on historic share reorganisations, exchanges and connected party transactions.
Any taxpayer who has participated in a share reorganisation or exchange between 6 April 2023 and 29 October 2024 where the conditions for BADR or investors’ relief were met in respect of the shares, should immediately review their position in light of these changes.
Lifetime Limit
It’s also worth noting that you can only claim BADR up to a lifetime limit, which is currently set to £1 million. There are no limits about how many times you use the relief though.
Depending on the size of the business asset being disposed of, there are other schemes which can be considered due to the £1 million lifetime limit. These schemes include Investors’ Relief and Enterprise Investment Schemes.
When do you have to apply for Business Asset Disposal Relief?
You can put in a claim for BADR up until 31st January, one year on from the end of the tax year in which the disposal was made. For example, if you completed a business disposal on 12 June 2023, then the disposal took place in the 2023/24 tax year so you have until 31st January 2026 to claim Business Asset Disposal Relief.
Get in touch!
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