Business Asset Disposal Relief
Business Asset Disposal Relief is a tax scheme which helps business owners keep more of their profits when selling assets. Instead of paying the full 20% Capital Gain Tax (CGT) rate, BADR cuts it to 10% on gains from the sale of assets up to a lifetime limit of £1,000,000.
The relief is a major incentive for entrepreneurs looking to sell all or part of their business of shares. By reducing the tax owed, you can reinvest the money saved into new ventures or set it aside for retirement.
What Assets Qualify for BADR?
Not all assets are eligible for BADR. To claim the relief, the assets you are selling must be part of your business. The main categories of qualifying assets include:
- Property: Commercial buildings such as offices, warehouses, or agricultural land if used in farming.
- Shares: If you own at least 5% of your business’s shares or shares in other businesses tied to your operations.
- Goodwill: This includes the intangible value of your business, such as brand reputation and customer loyalty.
- Machinery and Equipment: Any equipment directly used in the running of your business, such as vehicles or production machinery.
- Intellectual Property: Patents, trademarks and copyrights that add value to your business.
To qualify for BADR, you must actively use these assets in your business, rather than simply holding them as investments.
Who Can Claim BADR?
Eligibility for BADR depends on varying factors. Here’s a quick rundown of who can benefit from this tax relief:
- Sole Traders and Partners: If you are running your business as a sole trader or in a partnership, you can claim BADR when you sell the business or its assets.
- Limited Company Owners: Directors who own at least 5% of the company shares and have held them for a minimum of 2 years can claim relief.
- Shareholders: If you are an employee or director of a trading company and hold at least 5% of the shares, you are eligible to claim relief when selling them.
There are a few specific conditions, such as needing to have owned the asset for at least 2 years. Your business must also be trading, or have traded within the last 3 years, at the time of sale.
How Does BADR Work?
The mechanics of BADR are simple. When you sell a qualifying asset, you pay tax on the gain at 10%, rather than the standard 20%. Let’s take a look at a quick example:
- You sell a business asset for £500,000, which you originally bought for £200,000.
- The gain is £300,000.
- Without BADR, you would owe £60,000 in CGT at the 20% rate.
- With BADR, you only owe £30,000, saving you £30,000 in taxes.
Changes From the Autumn Budget 2024
To encourage entrepreneurs to invest in their businesses, BADR will remain at 10% this year, before rising to 14% on 6 April 2025 and 18% from 6 April 2026/27. The lifetime limit of BADR will be maintained at £1 million. The lifetime limit of Investors’ Relief will be reduced from £10 million to £1 million.
How to Apply for Business Asset Disposal Relief
Claiming BADR is not automatic. You must apply for the relief when you file your Self Assessment tax return. Here’s how:
- Report the Sale: In your tax return, use the “Capital Gains Summary” section to report the sale of the qualifying asset.
- Calculate Your Relief: Provide the calculations that show how you have applied BADR to reduce your CGT.
- File on Time: You have up to 4 years from the end of the tax year in which the disposal occurred to claim BADR. However, it is best to file as soon as possible.
Make sure all details are correct, as mistakes can delay your claim or result in rejection. You can consult HMRC’s “Helpsheet 275” for guidance or get advice from a tax professional.
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