.svg){kind=small}
%402x.svg){kind=small}
Business Asset Disposal Relief (BADR), formerly known as Entrepreneurs Relief (ER), is a Capital Gains Tax (CGT) relief which has a main aim to allow individuals who are selling part or all of a business, which they own a significant stake in, to reduce their CGT liability. This can be commonly seen for individuals looking to sell their business to retire or looking to raise funds for other projects or goals. Investors Relief (IR) is also increasing in line with BADR.
BADR used to allow individuals who met the criteria to limit their CGT rate to 10% on a qualifying gain, even as higher rate taxpayers, and they could utilise this on up to £1,000,000 of gains throughout their life. Any entrepreneur’s relief used prior to this would also use this allowance.
The below criteria need to be met for the two years prior to sale in order to qualify for BADR;
- The individual must either be a sole trader or own at least 5% of the company
- The individual must be an officer or employee of the company
- The individual must be beneficially entitled to 5% of distributable profits and assets on winding up and 5% of the proceeds if the company is to be sold at market value.
To follow and be in line with the CGT rates which changed as of 30 October 2024, the Business Asset Disposal Rate is also changing, however this is changing gradually compared to the immediate CGT change. As of 30 October 2024, the UK CGT rate for non-residential property disposals increased from 10% and 20%, for basic rate taxpayers and higher rate taxpayers respectively, to 18% and 24%. This is an 8% increase for basic rate taxpayers and a 4% increase for higher rate taxpayers. The Annual Exempt Amount (AEA) is now the lowest it has been in years, at £3,000 per individual, and so more individuals may be caught and liable to CGT in the UK compared to previous years.
This change in BADR rates is happening gradually, with gains on qualifying disposals made prior to 5 April 2025 being taxed at 10%, gains on qualifying disposals from 6 April 2025 will be taxed at 14%, and then gains on qualifying disposals made from 6 April 2026 will be taxed at 18%. There has been no change to the £1 million lifetime limit.
This timescale gives individuals time to plan any potential sale and be aware of any capital gains tax implications if they are looking to sell part or their whole business. If the whole allowance is utilised, the difference in CGT liability will be £40,000, therefore this needs to be considered.
Reference/Citation
Capital Gains Tax – rates of tax (GOV.UK) - https://www.gov.uk/government/publications/changes-to-the-rates-of-capital-gains-tax/capital-gains-tax-rates-of-tax
