What is business asset disposal relief?

When it comes to selling all or part of your business, considering the tax implications from the beginning is essential. Business Asset Disposal Relief (BADR) may help business owners get tax benefits when they sell their business assets.

Business Asset Disposal Relief is an important Capital Gains Tax (CGT) relief available to individual business owners that are planning their retirement, or a sale or exit from their business. If a disposal qualifies for Business Asset Disposal Relief, you will pay tax on the gain at 10%. With CGT rates of 10% for basic rate taxpayers, and 20% for higher rate taxpayers, the relief may offer valuable tax relief and lower the CGT payable on disposal. Making sure you're eligible for relief is a key tax planning opportunity when exiting your business and opening a discussion with your accountant earlier is essential.

Learn all you need to know about the relief and how a claim could save you significant amounts of tax. Discover the qualifying conditions and how it all works so you have the knowledge to have a comprehensive conversation with your accountant and tax advisor.

What qualifies you for business asset disposal relief? 

Business Asset Disposal Relief is available to individuals and some trustees, it is not available to companies. To get relief on qualifying disposals, follow the rules and conditions and consult your accountant for advice. 

 

What counts as a qualifying disposal? 

Business Asset Disposal Relief is available on qualifying disposals of business assets. You have to meet the relevant qualifying conditions throughout a qualifying period of two years ending on the date when you disposed of the asset, or an interest in the asset. 

A qualifying disposal of business assets includes: 

Assets used in a business comprising disposal of whole or part of a business 

An individual must have owned the business for at least two years. If you are disposing of a part of your business, we recommend you to seek expert advice. This will help ensure that the disposal qualifies for relief. 

The disposal of assets must significantly change the nature of the activities of an ongoing business. For example, selling a shop from which the business trades will not qualify for relief if the trading business continues. 

Property businesses are not eligible, except for Furnished Holiday Lettings. 

Assets used in a business disposed of within three years of business ceasing 

You might be eligible for Business Asset Disposal Relief when disposing of assets after the material disposal of a business. The following conditions must both apply: 

• the individual has owned the business for at least two years 
• you must sell assets within three years of business cessation 

Share or securities in a personal company 

A qualifying disposal of shares must meet the following conditions for two years up to the date you dispose of your shares: 

• you're an employee or officer (e.g. director) of the company 
• the company must be a trading company, or a holding company of a trading group 
• the company must be your ‘personal company’ 

What is a trading company? 

HM Revenue and Customs (HMRC) consider a trading company to be "a company which carries on trading activities and doesn’t carry on ‘substantial’ non trading activities." 

Substantial is identified as "not more than 20% of indicators should relate to non-trading activities." These indicators may include turnover, balance sheet assets and staff resources. 

What is a personal company? 

A personal company is one where you: 

• hold at least 5% of the ordinary share capital which gives you the ability to exercise at least 5% of the voting rights 
• are entitled to at least 5% of the distributable profits and 5% of the distributable assets on winding up 
• or be entitled to at least 5% of the proceeds of a disposal of the whole of the ordinary share capital of the company 

Assets owned personally and used in a business 

Where an individual has made a material disposal of business assets, they may qualify for relief on associated disposals. The associated disposal rules are available to partners and individuals with shares in a personal company. 

You should check with your accountant to see if you qualify for associated disposal relief. The relief may be restricted where: 

• the asset was used partly for non-business purposes 
• the asset was not used in the business during the period of ownership 
• the company reimbursed you for using the asset 

You need to exercise caution when determining whether you can claim relief for an associated disposal. We recommend speaking with a professional to determine if you are able to meet the relevant criteria. 

What is the business asset disposal relief limit? 

Business Asset Disposal Relief restricts the maximum gains that may benefit to a lifetime limit. This limit has changed over time and is currently £1 million. You can get relief on more than one qualifying gain until you reach your lifetime limit. After that, gains are liable to tax at regular capital gains tax rates. 

Disposals prior to 11th March 2020 and prior to 22 June 2010 may be subject to different rules. Calculations are more complex where you have made multiple disposals over your lifetime. We recommend you seek specialist advice. 

How and when to claim Business Asset Disposal Relief

To claim Business Asset Disposal Relief, you must include it on your tax return or send a separate claim for relief. 

You must make your claim by 31st January following the tax year in which you make the qualifying business disposal. For example, a disposal on 1st February 2024 occurs in the 2023-24 tax year. The deadline for making a claim is 31st January 2026. 

How does CGT work without business asset disposal relief? 

If your disposal does not qualify for Business Asset Disposal Relief, you will pay tax in line with the following Capital Gains Tax rates: 

Residential property: 

• Basic rate tax payer: 18% 
• Higher rate tax payer: 24% 

Other chargeable assets: 

• Basic rate tax payer:10% 
• Higher rate tax payer:20% 

TaxAssist Accountants can help you with your capital gains tax 

If you are considering selling all or part of your business or business assets we can help. We can advise you of the tax planning opportunities available before you make your disposal. Call TaxAssist Accountants on 020 3981 8102 or contact us using our online contact form. 

Date published 27 Nov 2023 | Last updated 13 Sep 2024

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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