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This is a freeview 'At a glance' guide to CGT Business Asset Disposal Relief (BADR), the relief formerly known as Entrepreneurs' Relief.

What is Business Asset Disposal Relief (BADR)? When does BADR apply? What is the rate of BADR? How to claim BADR.

Subscribers: Click here for your detailed guide to this topic.

At a glance

At a glance

Entrepreneurs' Relief (ER) was renamed Business Asset Disposal Relief (BADR) by Finance Act 2020. 

BADR is a Capital Gains Tax (CGT) relief that reduces the rate of tax paid on the disposal of business assets where the disposal proceeds are high enough to take you into the higher tax bands.

It can apply to disposals of:

When is BADR available?

The effect of BADR

Restrictions

How BADR works 

Chargeable gains covered by BADR are taxed at a tax rate of 10%.

The amount of BADR given depends on the amount of the individual's BADR lifetime limit after taking previous disposals into account at the date of the disposal.

The lifetime limit is as follows:

Gains in excess of the lifetime limit will be charged at the CGT rate applicable for that period.

The 'mechanics' of this relief have changed over the years, if you have made several disposals in your lifetime, this can make the calculation of your lifetime limit tricky.

For example

John owns a sole trade and four companies and he disposes of his business and his shareholdings between 2009-10 and 2020-21 as follows.

He sold his sole trade and business premises making a £2 million capital gain in September 2009. The disposal qualified for BADR and his gain was taxed as follows:

2009-10: first disposal

£

(£1,000,000 x 5/9ths) x 18% =

100,000

£1,000,000 x 18% =

180,000

CGT due (ignoring annual exemption)

£280,000

In May 2010 he sells all his shares in his first company, the £2 million gain qualifies for BADR. The lifetime limit increased to £2 million on 6 April and so he now has £1 million of BADR available to use up as follows:

2010-11: second disposal

£

(£1,000,000 x 5/9ths) x 18% =

100,000

£1,000,000 x 18% =

180,000

CGT due (ignoring annual exemption)

£280,000

In July 2010 he sells his second company making a £5 million gain which again qualifies for BADR. The lifetime limit increased to £5 million on 23 June and so he now has £3 million of BADR available to use up as follows:

2010-11: third disposal

£

£3,000,000 x 10% =

300,000

£2,000,000 x 28%* =

360,000

CGT due (ignoring annual exemption)

660,000

*CGT rate increases for higher rate taxpayers from 23 June 2010

In May 2018 he sells his third company making a £6 million gain which again qualifies for BADR. The lifetime limit increased to £10 million on 6 April 2011, as he has used up £5 million of his lifetime limit on his previous disposals only £5 million qualifies for relief.

2018-19: fourth disposal

£

£5,000,000 x 10% =

500,000

£1,000,000 x 20%** =

200,000

CGT due (ignoring annual exemption)

700,000

** CGT rate decreases to 20% for non-residential for higher rate tax payers from 2016-17.

In April 2020 he prepares to sell his fourth company, making a gain of £2 million. As the lifetime limit has now reduced to £1 million, he is unable to make a claim for BADR. He may claim his annual exemption against the gain and CGT will be paid on the gain at 20% as a higher rate taxpayer. The lower 10% rate will apply if he has any of his Income Tax basic rate band available. 

Notes

Different forms of BADR

BADR applies to a 'material disposal' of business assets, there are separate rules for the different classes of asset. These comprise:

Different forms of BADR Applies to:

Disposal of a business or part of a business

Sole traders or partners: S.169I(2)(a) TCGA 1992

Disposal of the assets of a business following its cessation

Sole traders or partnerships: s.169I(2)(b)
Disposal of shares or securities in a company Officer or employee shareholders
Disposal of a joint venture interest Joint venture officer or employee shareholders
Disposal of trust business assets Trustees
Disposal associated with a material disposal Shareholders or partners
Disposal of shares or securities in a company (Investors' Relief) Investor shareholders (not officers or employers)

 

Try the Virtual Tax Partner© Toolkits for BADR

These online tools are designed to work through the complex rules in minutes, they cover:

BADR: business and asset disposals (sole traders)
This toolkit covers around 50 different permutations of the rules covering disposals made by an individual.

BADR: share disposals
This toolkit covers share disposals and share disposals following incorporation and all the different permutations of the relief for shares for disposals.

What's new?

The rules for BADR have undergone multiple changes over the years, for full details of the changes see Subscriber Guide: Business Asset Disposal Relief

For the current version of the legislation see Section 169H to 169V TCGA 1992.

Key changes: At a glance

From 11 March 2020

From 29 October 2018:

See BADR: Disposal of shares or securities in a company

For disposals on or after 6 April 2019

Protecting BADR on diluted shareholdings

Investors' Relief

Transactions in Securities (TiS)

HMRC can use the Transactions in Securities (TiS) anti-avoidance rules to counteract an Income Tax advantage for a shareholder in certain circumstances. When a counteraction is made an otherwise capital receipt is taxed as income and BADR does not apply.

From 6 April 2016 the definition of a TiS is extended to include:

See Transactions in Securities.

Goodwill on Incorporation

Disposals made on or after 18 March 2015

Disposals made on or after 3 December 2014

Finance (No. 2) Act 2010 (FA (2) 2010)

Restriction on QCBs

From April 2010 BADR was restricted so that it no longer applied to gains deferred using Qualifying Corporate Bonds (QCBs).


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