Business Asset Disposal Relief, formerly known as Entrepreneurs’ Relief, represents a targeted Capital Gains Tax (CGT) incentive designed to stimulate business investment and expansion. Particularly beneficial for individuals taxed at higher or additional rates, BADR offers a substantial tax break on gains from the sale or other disposals of business assets.
What Constitutes a "Disposal"?
The term 'disposal' extends beyond merely selling an asset—it can also encompass giving it away or trading it for something else. Each of these actions could unlock significant tax advantages under BADR.
The Essence of Business Asset Disposal Relief
BADR substantially cuts the CGT rate on eligible assets from the standard 20% to 10%, halving the tax burden. With a £1 million lifetime cap on claims, the relief presents an opportunity to save up to £100,000 in taxes over one's lifetime.
Eligibility for BADR
To qualify for BADR, you must be:
- An individual disposing of a personal business or shares in a business partnership.
- A director or employee parting with shares in the trading company you're associated with.
It's important to note that companies and pure investors do not qualify for this relief.
Criteria for Selling Your Business or Shares
- For business owners: You should have owned the business as a sole trader or partner for a minimum of two years prior to the disposal.
- For share sales: Eligibility requires that you are an employee or office holder in a trading company, not merely an investment entity.
Claiming Business Asset Disposal Relief
The claim deadline for BADR is set for the 31st January following the tax year in which the disposal occurred. This gives you:
- Until 31st January 2024 to claim if you dispose of an asset on 3rd February 2023.
- Until 31st January 2025 if the asset is disposed of on 3rd June 2023, falling into the next tax year.
Simplifying BADR Tax
While the concept of BADR Tax might seem complex, it doesn't have to be bewildering. For those seeking straightforward, expert tax advice, including guidance on BADR tax, consulting with a professional accountant can demystify the process and ensure you maximize your relief benefits.
