Are you thinking of selling all or part of your company or have you decided to close the business entirely? If yes, you may be eligible for Business Asset Disposal Relief.
What is Business Asset Disposal Relief (BADR)?
When you sell (or ‘dispose of’) all or part of your business you will be liable to Capital Gains Tax on any profits.
Business Asset Disposal Relief is a tax relief which may reduce the amount of Capital Gains Tax due after selling or disposing of all or part of your business.
Disposing of an asset does not necessarily mean the asset has been sold but could mean it has been given away, exchanged for something else, the closure of a limited company with the disposal of shares or an asset has been ‘lost’ due to theft or damage.
For any qualifying assets, you will pay CGT at a discounted rate of 10% on gains up to £1 million. Without business asset disposal relief, capital gains tax would apply at the standard rate of 10% or 20% for higher rate taxpayers.
Prior to 6 April 2020 Business Asset Disposal Relief was known as Entrepreneurs’ Relief which had a limit of £10 million.
The Business Asset Disposal Relief is only available to individuals who own a business or shares within a business.
How do I qualify for Business Asset Disposal Relief?
Business Asset Disposal Relief is available to the following types of businesses:
- Sole trader
- Partnership
- Personal company
- Joint ventures
- Trust
The eligibility differs as to whether you are selling all or part of your business or selling shares in a company.
Selling all or part of your business
To qualify for relief, both of the following must apply for at least 2 years up to the date you sell or close your business:
- you’re a sole trader or business partner
- you’ve owned the business for at least 2 years
The company or business must be a trading business and business assets must be disposed of within 3 years to qualify for relief.
Selling shares or securities
To qualify, both of the following must apply for at least 2 years up to the date you sell your shares:
- you’re an employee or office holder (Director) of the company (or one in the same group)
- the company’s main activities are in trading (rather than non-trading activities like investment) – or it’s the holding company of a trading group
Selling assets you lent to the business
To qualify, both of the following must apply:
- you’ve sold at least 5% of your part of a business partnership or your shares in a personal company
- you owned the assets but let your business partnership or personal company use them for at least one year up to the date you sold your business or shares – or the date the business closed
If you’re a trustee
You may also qualify if you’re a trustee selling assets held in the trust. Claims by a trustee can be more complicated and we recommend taking professional advice relating to your individual circumstances.
Disposing or selling property
Landlords should note that the sale of property doesn’t qualify for this relief unless it’s a furnished holiday let.
How do I apply for Business Asset Disposal Relief?
You can claim for BADT through a Self-Assessment tax return or by filling section A of the Business Asset Disposal Relief help sheet.
Claims must be made by the first anniversary of the 31 January following the end of the tax year in which the qualifying disposal takes place.
How many times can I claim?
You can claim as many times as you need to up to the limit of £1 million in your lifetime.
If you would like advice on Business Asset Disposal Relief based on your individual circumstances, get in touch with us at Maynard Johns Chartered Accounts on 01237 472071.