How Business Asset Disposal Relief (BADR) Works

Published by Rana Zubair posted in Capital Gains Tax on 12 November 2020

Business Asset Disposal Relief (BADR) in simple words is a tax relief that the seller of a business can benefit from on sale of the business. This relief was formerly as Entrepreneurs Relief until 6th April 2020.

This incentive set up by the UK Government to encourage people to set up a business, put time and energy into building it and then reward them for their hard work once they are ready to sell it.

Business Asset Disposal Relief formerly known as Entrepreneurs’ Relief before 6 April 2020. The relief was renamed in Finance Act 2020. The name change does not affect the operation of the relief.

Where this relief applies:

Business Asset Disposal Relief (BADR) applies to the sale of a business, shares in a trading company or an individual’s interest in a trading partnership.

Where this relief is available CGT of 10% is payable in place of the standard rate. There are a number of qualifying conditions that must be met in order to qualify for the relief.

History of applicable rates:

When the relief was first introduced there was a lifetime limit of £1 million for gains. This was increased to £2 million from 6 April 2010, to £5 million from 23 June 2010 and to £10 million from 6 April 2011. The limit was reduced to £1 million on 11 March 2020.

The £1m lifetime limit means that individuals can qualify for the relief more than once subject to an overriding total limit of £1m of qualifying capital gains. The changes to the lifetime limit are not retrospective.

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Who can claim:

To qualify for relief, you should be either an officer or employee of the company and own at least 5% of the company and have at least 5% of the voting rights. There are also other qualifying conditions that must be met in order to qualify for the relief.

The minimum period during which certain conditions must be met in order to qualify for Business Asset Disposal Relief increased from one to two years from 6 April 2019.

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