What is Business Asset Disposal Relief, formerly Entrepreneurs’ Relief and how does it work?

03-02-2022


Following the Finance Act 2020, the previously known Entrepreneurs’ Relief (ER), now Business Asset Disposal Relief (BADR) was reformed. The reform reduced the maximum gain in which the 10% rate applies from £10 million to £1 million.

BADR is a Capital Gains Tax (CGT) relief that is aimed at reducing the rate of tax paid on the disposal of business assets where the disposal proceeds are high enough to take an individual into a higher rate tax band. The relief reduces the CGT payable by an individual to 10% on qualifying disposals in their lifetime.

Who qualifies for Business Asset Disposal Relief?

Business Asset Disposal Relief is aimed at and available to individuals and some trustees of settlements. It should be noted that the relief is not available for companies or a trust where the entire trust is a discretionary settlement. In certain, specific circumstances the relief is also available for Personal Representatives of a deceased person, where the disposal took place while the deceased person was still alive.

BADR does not apply to disposals of investments or assets by companies, and an individual may claim BADR up to a lifetime limit of qualifying capital gains. Should an individual have several disposals in their lifetime, then the mechanics and calculation for the relief will alter accordingly.

Requirements of Business Asset Disposal Relief:

In order for BADR (ER) to apply on share transactions there are certain requirements, as follows:

It should be noted that BADR does apply to disposal of assets other than incorporated companies such as join venture interests, business assets held in trusts, a sole trade and partnerships interests and their assets.

Who is an ‘employee or officer’ under the HMRC definitions:

Under the HMRC definitions there a certain, flexible requirements as to who an ‘employee or officer’ is under BADR, as follows:

How to claim Business Asset Disposal Relief:

BADR (ER) has to be reported to HMRC on the personal tax return for the year in which the return arises for the individual. Should an individual fail to claim the relief then this could result in a failure to secure the disposal relief.

If you are thinking about selling your business, then please do get in touch with our specialist business team here.


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