Business Asset Disposal Relief (BADR)
If you’re a small business owner or entrepreneur selling shares in a company, you may be wondering how to reduce the capital gains tax paid on the sale of those assets. The Business Asset Disposal Relief scheme is a tax relief system aimed at small business owners that helps to minimise capital gains on qualifying asset sales. Learn more about BADR to discover if you’re eligible, how to claim it, and how this tax relief can boost your profits when you sell part or all of your qualifying business assets.
- Business Asset Disposal Relief is a tax relief that minimises the amount of capital gains tax that you pay on the sale of your business assets.
- In order to claim BADR, you must be a sole trader or business partner in a company for at least 2 years.
- You can claim BADR on your Self Assessment Tax Return or with the Business Asset Disposal Relief helpsheet.
- There’s no limit to the amount of times you can claim BADR, but there is a £1 million total lifetime limit.
- What Is Business Asset Disposal Relief (BADR)?
- Eligibility Criteria to be Able to Claim BADR Relief
- How to Claim Business Asset Disposal Relief
- How to Calculate Business Asset Disposal Relief?
- Business Asset Disposal Relief Limit
- Business Asset Disposal Relief Conditions and Rules
- Prepare Your Taxes Easily with FreshBooks
- Frequently Asked Questions
What Is Business Asset Disposal Relief (BADR)?
Business Asset Disposal Relief, or BADR, is a UK government tax relief that helps you reduce the amount of capital gains tax that you pay when you sell a business asset. When you sell a business asset, like shares in a trading group, you’re obligated to pay CGT on the profits from the sale of that asset. Those who qualify for BADR pay a reduced amount of CGT when they sell part or all of the ordinary share capital of their business. Previously, this tax relief scheme was called Entrepreneur’s Relief but was updated to BADR in 2020.
Eligibility Criteria to be Able to Claim BADR Relief
In order to qualify for BADR, the business or personal trading company you’re selling assets from must be operated by you. Eligible business structures include:
- Personal companies
- Sole traders
- Joint ventures
Whether you’re a sole trader or a business partner, you must have owned the business assets for a minimum of 2 years before the business sale in order to claim relief. You can sell either your whole business or some shares, but if you’re closing the business then you must dispose of the assets within 3 years in order to receive BADR.
How to Claim Business Asset Disposal Relief
You can claim BADR anytime you dispose of business or personal company assets, so long as the sale meets the eligibility criteria. There are two ways to claim:
- Fill out the Self-Assessment Tax Return and claim BADR
- Fill in Section A of the Business Asset Disposal Relief helpsheet
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How to Calculate Business Asset Disposal Relief?
While BADR reduces the amount of CGT you pay on a sale, you still need to pay some tax. The following steps help you calculate BADR to find your final CGT tax-owing amount.
- Calculate your overall profits from business asset disposal
- Check that they qualify for BADR
- Subtract any qualifying costs like solicitor fees for the sale
- Subtract your CGT tax-free allowance of £6,000 (or £3,000 for trusts)
- From this total, calculate 10%—this is the final amount of CGT that you must pay
These amounts may vary for higher-rate taxpayers.
Business Asset Disposal Relief Limit
You can claim BADR whenever you wish, but there is a lifetime Business Asset Disposal Relief limit of £1,000,000. So long as you don’t exceed this amount, you can claim as often as needed. If you sold your business assets prior to 11 March 2020, you may be able to claim some additional amounts.
Business Asset Disposal Relief Conditions and Rules
In addition to the basic eligibility criteria for BADR, there are a few more conditions and rules that may apply to your business:
- Those selling shares or securities must be an employee or office holder, have held shares for at least 2 years, and the company’s main activity must be trading
- For shares in an EMI, shares must have been purchased after 5 April 2013, and the holder must have had the option to buy the shares for at least two years before the sale
- For non-EMI shares, you must have at least 5% of the shares and voting rights, and be entitled to at least 5% of disposal proceeds or profits on winding up the company
Prepare Your Taxes Easily with FreshBooks
Business Asset Disposal Relief, or BADR, reduces the amount of capital gains tax that you pay on the profits from qualifying business asset sales. In order to be eligible, you need to be a sole trader or partner in the company for at least 2 years. You can claim BADR on qualifying gains from the sale of part or a whole company, with a lifetime limit of £1 million on the total amount of BADR you can claim.
FreshBooks accounting software helps you manage your small business assets so you can easily track your sales, profits, and tax deductions. Try FreshBooks free to get started organising your BADR claims, then make filing easy with the MTD-compatible software for tax season.
FAQs About Business Asset Disposal Relief
Discover even more about Business Asset Disposal Relief with answers to frequently asked questions on the lifetime allowance, qualifying assets, and more.
What is the lifetime allowance for Business Asset Disposal Relief?
The lifetime allowance for HMRC Business Asset Disposal Relief is £1 million. There’s no limit to the amount of times or the frequency for claiming BADR, but you cannot exceed the £1m total amount. FreshBooks accounting software helps you track your investment assets and claims so you can make the most of your BADR tax relief.
What assets qualify for BADR?
Qualifying assets for Business Asset Disposal Relief are shares in a company where you’re the sole trader or a business partner and where you’ve owned the business for at least 2 years. If you’re selling the business, you can claim BADR on the profits within 3 years of the sale.
Do you have to be a director to claim entrepreneur relief?
No, you don’t have to be a director to claim Business Assets Disposal Relief, but you do have to be a sole trader or partner. For shares in a private company, you must own at least 5% of the shares and 5% of the voting rights in the holding company to qualify for BADR.
About the author
Levon Kokhlikyan is a Finance Manager and accountant with 18 years of experience in managerial accounting and consolidations. He has a proven track record of success in cost accounting, analyzing financial data, and implementing effective processes. Levon holds an ACCA accreditation and a bachelor’s degree in social science from Yerevan State University. Catch up with him on LinkedIn: https://www.linkedin.com/in/levon-kokhlikyan-34281398/