When you invest in the first faltering steps of a new venture or enterprise, you want to be pretty sure that you get a decent return on this entrepreneurial investment.
One way to do this is to make use of Business Asset Disposal Relief – an important relief that allows you to lower the amount of capital gains tax you pay when disposing of certain assets.
Everything you need to know about Business Asset Disposal Relief
The UK Government has always been keen to promote and encourage entrepreneurialism. A long-standing way to do this was via Entrepreneurs’ Relief, a way to reduce the amount of capital gains tax business owners paid following the disposal of some business assets.
In 2020, Entrepreneurs Relief was rebranded as Business Asset Disposal Relief (BADR), continuing the use of this enterprise-focused relief for ambitious investors.
Here’s a quick overview of how BADR works:
A reduced rate of capital gains tax
BADR allows eligible taxpayers to pay a reduced capital gains tax (CGT) rate of 10% on qualifying gains. This compares favourably to the current 20% standard rate of CGT.
Your lifetime limit
There’s a lifetime limit of £1 million on gains that are eligible for BADR relief. Once over the £1m threshold, you’ll pay CGT at the standard rate.
Who’s eligible for BADR?
To qualify for the relief, you must typically have owned and run the business for at least two years. The shares or assets you own must also be directly connected to the business. Which assets qualify? BADR can apply to shares in a trading company, business assets like machinery or property, and certain intellectual property rights.
How do you make a claim?
To claim BADR, you’ll need to complete a tax return and provide supporting documentation regarding the assets and disposal to HMRC.
How is BADR changing for future tax years?
In the Budget 2024, the Chancellor, Rachel Reeves, announced that BADR would remain as a relief, but that the rate of CGT paid would increase over successive years.
In April 2025, the BADR tax rate will rise from 10% to 14%In April 2026, the BADR tax rate will rise from 14% to 18%
Talk to us about the best time to make a BADR claim
If you’re thinking of making a BADR claim, some careful planning will be needed to get the optimal benefit from the relief. Remember, you need to have owned your business for two years or more to be eligible, and that the lower 10% rate will only apply until March 2025.
Talk to our team and we’ll help you assess your eligibility for BADR and the most tax-efficient way for you to dispose of your business assets.
