Guide to the Business Asset Disposal Relief

Jordan Macey

June 17, 2021

No items found.
Download Now ↓
Small Business Accounting

What is the Business Asset Disposal Relief?

The Business Asset Disposal Relief (BADR) is a tax relief that reduces the amount of Capital Gains Tax (CGT) payable when you sell all or part of your business. Instead of the usual rates, you’ll pay a reduced CGT rate of 10% on the first £1 million of gains. 

The BADR replaced the Entrepreneurs’ Relief (ER) in March 2020, with the main change being a reduction to the lifetime allowance—from £10 million to £1 million.

You can’t claim BADR if you’ve previously claimed ER for gains amounting to, or exceeding £1 million. And if you’ve claimed ER for gains amounting to under £1 million, you’re eligible to claim BADR on gains up to the £1 million threshold.

You may be able to claim more than £1 million if you sold your assets before 11 March 2020. Get in touch with HMRC to find out more.

Who’s eligible for the Business Asset Disposal Relief?

1. You’re selling all or part of your business

Both of the following conditions must apply for at least two years up to the date you sell your business: 

  • You’re a sole trader or business partner
  • You’ve owned the business for at least two years

2. You’re selling shares or securities

Both of the following conditions must apply for at least two years up to the date you sell your business: 

  • You’re an employee, or office holder of the company
  • The company’s main activities are in trading (rather than non-trading activities like investment), or it’s the holding company of a trading group. Further information is available on HMRC’s Capital Gains Manual

If your shares are not from an Enterprise Management Incentive (EMI), the following conditions must apply:

  • The business must be a ‘personal company’, where you have at least 5% of both the shares and voting rights 
  • You must be entitled to at least 5% of either: profits that are available for distribution and assets on winding up the company, or disposal proceeds if the company is sold

And if your shares are from an EMI, both the following conditions need to apply:

  • You must have acquired the shares after 5 April 2013
  • You’ve been given the option of buying the shares at least two years prior to selling them

3. You’re selling assets you’ve lent to the business

Both of the following conditions must apply: 

  • You’ve sold at least 5% of your part of a business partnership or your shares in a personal company
  • You owned the assets, but let your business partnership or personal company use these assets for at least one year up to the date you sold your business or shares, or the date of closure for the business

4. You’re a trustee

You may be eligible for the BADR if you’re a trustee selling assets held in the trust. You’ll find more information on HMRC’s guidance on the BADR

Download our Ultimate Expenses Guide

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
No items found.
No items found.

Work out your tax

Step 1: Work out your total taxable gain. Sum up your capital gains, before subtracting your losses. 

Step 2: Subtract your CGT allowance from the amount you derived from the first step. The CGT allowance for individuals is £12,300 (2021/22 tax year). If your asset is jointly owned, you can use both your CGT allowances—which could amount to £24,600. 

Step 3: Calculate 10% of the figure you derived in the second step. That’s the amount of tax you’ll pay.

How to claim Business Asset Disposal Relief

There are two ways in which you can claim the BADR: through your Self Assessment tax return, or by completing Section A of the Business Asset Disposal Relief helpsheet. There isn’t a limit to the number of times you can claim the relief.

Download our Ultimate Expenses Guide

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
No items found.
No items found.

What's Inside:

No items found.

Read More Guides below:

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
View more guides, calculators and downloads here: