What is Business Asset Disposal Relief (BADR)? When does BADR apply? What is the rate of BADR? How to claim BADR.
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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.
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 qualifying business assets where the disposal proceeds are high enough to take you into the higher tax bands.
It can apply to disposals of:
- A sole trade and its assets.
- Partnership interests and assets.
- Shares in your own company.
- Joint venture interests.
- Business assets held by a trust.
When is BADR available?
- It is available to CGT disposals made by individuals and trustees. It does not apply to disposals by companies.
- It applies to qualifying disposals of business assets. It does not apply to the disposal of investment or non-business assets.
The effect of BADR
- It reduces the rate of CGT payable on qualifying disposals to 10%.
- An individual may claim BADR up to a lifetime limit of qualifying capital gains. This limit is currently £1 million.
Restrictions
- BADR does not apply to carried interest gains. These continue to be charged at normal CGT rates of 18% and 28% (note: the carried interest rate did not decrease to 24% from 6 April 2024, unlike the residential property rate).
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:
- £1 million from 11 March 2020.
- £10 million from 6 April 2011 to 10 March 2020.
- £5 million from 23 June 2010 to 5 April 2011.
- £2 million from 6 April 2010 to 22 June 2010.
- £1 million for 2008-09 and 2009-10.
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 2024-25 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 2024 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, after taking account of his taxable income for that tax year.
Notes
- An individual will be able to make more than one claim for relief up to the total of the lifetime limit prevailing at the date of the disposal.
- In these examples, John can first use his annual exemption to offset his gains that do not qualify for BADR. If all his gains qualified for BADR he would deduct his available annual exemption from the BADR-qualifying gain before calculating CGT due.
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: |
| 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.
- Between 6 April 2014 and 29 October 2018.
- Between 29 October 2018 and 5 April 2019.
- On or After 6 April 2019.
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.
- Between 6 April 2014 and 29 October 2018.
- Between 29 October 2018 and 5 April 2019.
- On or After 6 April 2019.
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
- Reduction in the BADR lifetime allowance to £1 million.
- Renaming of the relief 'Business Asset Disposal Relief' (BADR).
From 29 October 2018:
- Key new changes to all the personal company conditions
- These changes do not affect Enterprise Management Incentive (EMI) share options as there is no requirement for the personal company tests to be met by shareholdings acquired under an EMI scheme.
See BADR: Disposal of shares or securities in a company
For disposals on or after 6 April 2019
- The minimum qualifying period is extended to two years.
- See BADR: Disposal of shares or securities in a company
Protecting BADR on diluted shareholdings
- Shareholders whose holding is diluted below 5% after a commercial fundraising can make an election to preserve relief.
- See BADR: Disposal of shares or securities in a company
Investors' Relief
- Individual company investors who are not officers or employees of the company can claim Investors' Relief on qualifying shares, subject to a lifetime cap of £10 million.
- Although not unlike BADR, it has different qualifying conditions. It is covered in a separate note, see 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:
- A repayment of share capital or share premium.
- A distribution in respect of securities on a winding-up.
- A Targeted Anti-Avoidance Rule (TAAR) has also been introduced to target ‘phoenixing’.
See Transactions in Securities.
Goodwill on incorporation
- From 3 December 2014, BADR is restricted on certain disposals of goodwill to a close company where the individual transferring the goodwill is a related party by virtue of having rights over more than 5% of the share capital of the new company.
- This is subject to a set of complex special rules that apply for a quick re-sale of the company, certain disposals are permitted and there are anti-avoidance provisions.
- See BADR: A disposal of a business or part of a business.
Disposals made on or after 18 March 2015
- BADR associated disposals rules require the disposal of at least a 5% shareholding in the company or a 5% share in the partnership assets.
- BADR and joint venture companies: the definition of a trading company changes for BADR. Finance Act 2016 introduced changes to these rules which are backdated to 18 March 2015. See Finance Act 2016 above.
Disposals made on or after 3 December 2014
- BADR is restricted on the disposals of goodwill on incorporation between related parties.
- Gains that are eligible for BADR that are realised on or after 3 December 2014 may be reinvested in EIS (or Social Investment Tax Relief) and will still remain eligible for BADR when the deferred gain is realised. See EIS relief.
Finance (No. 2) Act 2010 (FA (2) 2010)
Restriction on Qualifying Corporate Bonds
From April 2010 BADR was restricted so that it no longer applied to gains deferred using Qualifying Corporate Bonds (QCBs).
