CGT Business asset disposal relief explained
Business asset disposal relief (BADR) (formerly Entrepreneurs relief (ER)) is a 10% capital gains tax relief. It is available to individuals (or trustees in some circumstances) but not to limited companies.
BADR may be available when you sell part or all of your business, or shares in your own company. Where the relief applies, the capital gain is taxed at an effective rate of just 10% instead of 10% or 28% (18% or 28% for residential property and carried interest).
There are some other tight restrictions to BADR:
- You must be disposing of a material part or all of your business. This includes:
- The sale of the whole business;
- The sale of a partnership interest;
- The sale of shares in a qualifying company where the shareholder must own at least 5% of the ordinary voting shares and have been an officer or employee of the company throughout the period of two years prior to disposal. There is an exception to the 5% rule for EMI shares.
If assets are sold without the sale of the business or cessation of the trade, they will not qualify for the relief. For example, if a farmer was selling one field from their farm, BADR would not apply.
- You must have held the assets or shares for at least one year before the sale.
- The business must fall under the definition of a trading business, which means a property letting business will not qualify. Furnished holiday lettings do qualify.
- It applies to gains made from 6 April 2008. Taxpayers are limited to claiming this relief on lifetime gains from then up to...
£1million for gains from 6 April 2008 to 5 April 2010
£2million for gains from 6 April 2010 to 22 June 2010
£5million for gains from 23 June 2010 to 5 April 2011
£10million for gains from 6 April 2011 to 5 April 2020
- £1million for gains from 11 March 2020
Where the conditions are met it may also be possible to claim relief where gains are deferred as a result of Enterprise Investment Scheme or Venture Capital Trust investments.
Where a material disposal relates to a sale of shares or a partnership share, the person disposing is also able to claim relief against any gains on the disposal of an asset used in the business. This later disposal can happen within 3 years of the original disposal. The relief is restricted if rent is charged on the property.
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