How does Business Asset Disposal Relief work and am I eligible?
Business Asset Disposal Relief (BADR) is a tax relief scheme that reduces the rate of Capital Gains Tax payable on the profit you make when selling or disposing of business assets. So, if you plan on retiring or closing a solvent limited company you no longer need, BADR is something to be aware of.
Here we discuss how Business Asset Disposal Relief works, the relief it provides and whether you might be eligible.
Understanding Business Asset Disposal Relief
Business Asset Disposal Relief reduces the financial burden on company directors and business owners when they dispose of business assets or sell shares in their company. Formerly known as Entrepreneurs’ Relief, the scheme aims to encourage entrepreneurs to start and invest in their businesses.
However, if you are eligible for Business Asset Disposal Relief, it reduces the rate of CGT you pay to 18%. There is no limit on the number of businesses you can sell or close to qualify for the scheme, but there is a lifetime limit of £1 million of qualifying gains.
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Who is eligible for Business Asset Disposal Relief?
You may be eligible to claim Business Asset Disposal Relief when you dispose of ‘qualifying assets’. Qualifying assets include the entire business, part of the business or shares.
To be eligible for BADR, you must meet the following criteria:
The business or company must have been trading
A sole trader or partnership must have traded for at least two years before its sale or closure
Company shareholders must have held at least 5% of the shares and voting rights for at least two years
Company shareholders must have been office holders (such as a director) or employees for at least two years
If you want to sell all or part of your business then:
You must be a sole trader or business partner; and
You must have owned the business for at least two years.
If you qualify, you must claim the Business Asset Disposal Relief by 31 January following the tax year when the disposal or sale occurred. If you close your business, you can only claim BADR if you sell the asset within three years.
You can claim BADR by:
Including the details of the assets and their value in your Self Assessment tax return; or
Concerned about National Living Wage and NI increases?
With the rates of both National Living Wage and employer National Insurance Contributions increasing in recent years, this additional cost of employing staff has added more pressure onto already squeezed cash flows. If you are worried about the impact this is having on your company's finances, talk to the experts at UK Liquidators. As licensed insolvency practitioners we can explain your options and help you plot a way forward. Call today on 0808 253 9878.
How does BADR work in a Members’ Voluntary Liquidation?
There are two ways to close a solvent limited company. You can use a process called Voluntary Dissolution, which is the cheapest method, or put your business into a formal liquidation procedure called Members’ Voluntary Liquidation (MVL).
On the face of it, an MVL is more expensive, as you have to pay the professional fees of a liquidator. However, it’s also more tax-efficient as you can claim Business Asset Disposal Relief on the distributions.
The liquidator will value and sell the company’s assets as part of the process and distribute the proceeds among the shareholders. All the proceeds from a Members' Voluntary Liquidation are taxed as capital rather than income, and if you qualify for BADR, it will reduce the rate of CGT tax payable.
If you were to dissolve the company, only the first £25,000 is taxed as capital. Anything over that amount is regarded as income, which you pay more tax on. You cannot claim Business Asset Disposal Relief if the company is dissolved or struck off.
How we can help
If you want to close your solvent business and think you might qualify for Business Asset Disposal Relief, we can provide industry-leading advice and guide you through the process. Please get in touch for a free consultation or arrange a meeting at one of our 100+ offices throughout the UK.
Jonathan Munnery
Insolvency & Restructuring Expert | 20+ Years Insolvency Experience
Jonathan is a Partner at Real Business Rescue and member of both the Insolvency Practitioners Association (MIPA) and The Association of Business Recovery Professionals (MABRP). Jonathan has over 20 years’ experience guiding directors through CVL and MVL processes, helping them understand their options and navigate financial distress with clarity and compassion.
IPA Member MABRP Member IPA Regulated
“ Directors often wait too long before seeking advice. The earlier you call, the more options remain available to you — and the better the outcome for everyone involved. ”
Jonathan is a Partner at Real Business Rescue and member of both the Insolvency Practitioners Association (MIPA) and The Association of Business Recovery Professionals (MABRP). Jonathan has over 20 years’ experience guiding directors through CVL and MVL processes, helping them understand their options and navigate financial distress with clarity and compassion.
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