Before April 6, 2020, Business Asset Disposal Relief (BADR) was known as Entrepreneurs' Relief. In the Finance Act 2020, the relief was renamed. The relief's operation is unaffected by the name change.
BADR applies to the sale of a business, shares in a trading corporation, or an individual's involvement in a trading partnership and can be a beneficial relief. When this relief is available, the CGT rate is reduced to 10% instead of the regular rate. There are a few requirements that must be completed in order to be eligible for the relief.
Limits on how much BADR can be claimed
Gains had a lifetime limit of £1 million when the relief was initially established. The lifetime maximum has fluctuated throughout time, and on March 11, 2020, it was cut to £1 million (from £10 million).
Individuals can qualify for the relief more than once under the £1m lifetime limit, subject to an overriding total limit of £1m in qualifying capital gains. The lifetime restriction has been changed, but it is not retroactive.
To be eligible for BADR, you must meet certain criteria.
There are some requirements that must be satisfied in order to be eligible for the lower 10% rate.
If you're selling all or part of your firm, you'll need to meet both of the following criteria to qualify for tax relief:
- You must be a lone trader or a partner in a firm; and
- You must have owned the company for at least two years before selling it.
If you're closing your business instead, the same rules apply. To get for relief, you must also sell your business assets within three years.
If you're selling shares or securities in a corporation, you must have been an officer or employee for at least two years and own at least 5% of the firm and have at least 5% of the voting rights before selling your shares. From April 6, 2019, the minimum term during which certain prerequisites must be met to qualify for BADR raised from one to two years.
You must also be entitled to at least 5% of one of the following:
- profits and assets available for distribution after the company is wound up; or
- If the company is sold, the disposal proceeds.
A trade business or the holding company of a trading group is also required. If the number of shares you own falls below 5% as a result of the company issuing more, you may still be eligible for BADR. If your shares were acquired under specific Enterprise Management Incentive schemes, the restrictions are different.
What is the formula for calculating a BADR claim?
Making a qualifying claim for BADR is as follows, according to HMRC:
- Calculate the profit on all qualifying assets.
- Calculate the total taxable gain eligible for BADR by adding the gains (and subtracting qualifying losses).
- Subtract your tax-free amount.
- What's left will be subject to a 10% tax.
How do I apply for BADR relief?
You can get BADR in one of two methods. Using your self-assessment tax return is the most popular method. Capital gains and losses are recorded on the capital gains summary (SA108).
Fill out Section A of the Business Asset Disposal Relief helpsheet – HS275 to file a claim.
The deadline for filing a BADR claim has passed.
The first anniversary of the 31 January after the conclusion of the tax year in which you made the qualified disposition is the deadline for filing a claim. For example, if you sell your business between April 6, 2020, and April 5, 2021, you must file a claim no later than January 31, 2023.
Investors are relieved.
There is also a sibling relief known as Investor's Relief, which has a separate lifetime ceiling of £10 million. Investors in qualified shares of an unlisted trading business are eligible for Investors' Relief. There are a number of requirements to qualify for the relief, and it's crucial to think about it right away because many of the requirements must be met during the term of share ownership. If the investor, or anybody associated to the investment, is an official or employee of the company, Investors' Relief is not accessible.
Are you looking for an expert to help you with your BADR claim? Accountants in London have a team of experts who will deal with HMRC on your behalf and assist you in claiming what is properly yours! So get in touch with us straight away!
