Understanding Business Asset Disposal Relief (BADR) and Its Changes

Understanding Business Asset Disposal Relief (BADR) and Its Changes

When you pour your heart and capital into a new business, you want to make sure you see a strong return on that investment. One way to boost your financial outcome is by making the most of Business Asset Disposal Relief (BADR), a valuable tax relief that reduces the capital gains tax (CGT) on qualifying business asset sales.

What Is Business Asset Disposal Relief?

Formerly known as Entrepreneurs’ Relief, BADR continues to help business owners reduce CGT when they dispose of certain business assets. This relief has been a key tool in supporting entrepreneurial activity in the UK.

Here’s how it works:

• Reduced CGT Rate: With BADR, you pay only 10% on qualifying gains, which is a much lower rate than the standard CGT rate of 20%.
• Lifetime Limit: You can claim BADR on up to £1 million of gains during your lifetime. Once you exceed this limit, the standard CGT rate applies.

Who Is Eligible for BADR?

To qualify for BADR, you must meet a few key criteria:

• Ownership & Business Involvement: You need to have owned and run the business for at least two years.
• Asset Requirements: The assets must be directly related to the business, such as shares in a trading company, business machinery, property, or intellectual property rights.

How to Claim BADR

Claiming BADR is straightforward, but it does require some paperwork:

• Tax Return: You’ll need to complete a tax return and submit documentation to HMRC detailing the assets you’re disposing of and the sale process.

Upcoming Changes to BADR

Big changes are coming for BADR from 2025. According to the 2024 Budget, the CGT rate on qualifying gains will increase over the next few years:

• April 2025: BADR rate will rise from 10% to 14%
• April 2026: BADR rate will rise from 14% to 18%

How Can We Help?

If you’re considering a BADR claim, careful planning is essential to maximize the benefit. Since you need to have owned the business for at least two years and the 10% rate is only available until March 2025, timing is crucial.

Get in touch with us to assess your eligibility and to ensure you’re making the most tax-efficient decisions when disposing of your business assets.