Business Asset Disposal Relief (BADR) – formerly Entrepreneurs’ Relief – allows limited company contractors to pay a reduced 10% capital gains tax rate on the disposal of their business or shares in the company, up to a lifetime limit of £1 million, subject to certain conditions.
A brief history of BADR
Entrepreneurs’ Relief initially allowed business owners to pay the same 10% rate on the first £1 million of business sale proceeds. At Alistair Darling’s final Budget, the Chancellor doubled the lifetime allowance to £2m. The limit was extended to £5m during the ‘Emergency Budget’, effective from 23rd June 2010.
The lifetime limit was extended to £10m during the 2011 Budget, effective from 6th April 2011. This limit remained for 9 years but was reduced to £1m from 11th March 2020 onwards.
Entrepreneurs’ Relief was also renamed to Business Asset Disposal Relief (BADR) in 2020.
Entrepreneurs’ Relief (Now Business Asset Disposal Relief) – Key Points
The relief can be claimed on the disposal of all or part of a business, shares in the company, or business assets after the entity has ceased trading.
The relief can only be claimed by an individual, whether a sole trader, partner, or shareholder in a limited company.
Limited companies that own shares in other companies may not claim Business Asset Disposal Relief, although some trustees can.
One condition for BADR to apply is that you must have owned the business for at least two years before the disposal or two years before the date on which the business stopped trading.
How and When to Claim
There are two ways to claim the relief: via your Self Assessment Tax Return, or by completing Section A of the Business Asset Disposal Relief fact sheet (formerly Entrepreneurs’ Relief).
Individuals can make as many claims against their allowance over time. However, gains over the £1m lifetime allowance are taxed at the prevailing CGT rates for business assets and shares. The rates are 10% for basic rate taxpayers and 20% for higher rate taxpayers. Make sure you check the current CGT rates here.
A claim must be made to HMRC within 12 months of 31st January in the year following the one in which the disposal was made. For example, if you made an eligible disposal during the tax year ended 5th April 2023, you would have until 31st January 2025 to make a claim. This is roughly 22 months following the end of the tax year in question.
Further Information
This guide provides a basic outline of the way the relief works.
Read the HMRC’s PDF entrepreneurs’ relief helpsheet for more information here.
Clearly, you should seek professional advice first to ensure that you are eligible to claim relief on the disposal of your company or business.
