Disposal of Business Assets Relief (BADR)
BADR, formerly known as Entrepreneurs' Relief, is a capital gains tax (CGT) relief designed to encourage people to expand and invest in their enterprises. It is a vital source of relief for higher and additional rate taxpayers. Although its benefits have been lowered and it has been threatened with removal in recent years, BADR has survived to date and continues to offer tax incentives to business owners.
On the sale of business assets Relief, BADR is offered, lowering the CGT rate on eligible gains to 10%. (compared to the current standard rate of CGT of 20 percent ). Gains are limited to a lifetime cap of £1 million, thus the present maximum potential tax savings under BADR is £100,000.
Individuals selling their personal enterprises or partnership interests, as well as directors and workers selling shares in the company (or group of companies) for which they work, are eligible for the relief. Trustees may be eligible for BADR under specific instances, although this isn't covered in depth in this factsheet.
BADR is not available to corporate bodies, such as businesses, and because the relief is only available on the sale of business assets, BADR will not be available to taxpayers on the sale of investment assets.
Disposals that are BADR-eligible
The disposal must fall into one of the following categories to qualify for BADR:
- A substantial sale of a company's assets.
- Waste disposal is linked to material disposal.
A substantial sale of a company's assets
When considering a BADR claim, this is the category that most people fall into. There are three sorts of 'enterprise assets' that may be eligible for tax relief:
- A sole trader or partnership business in its entirety or in part.
- When a firm ceases to operate, an asset used in the business is sold.
- A company's shares or securities (for example, lending stock).
Each of these groups has its own set of rules for what constitutes a "material disposal."
A sole trader or partnership business in its entirety or in part
When a person who owns a business, whether as a sole trader or as part of a partnership, sells their share of the business, they may be eligible for BADR. Only assets used in the business at the time of the disposal will be eligible for relief.
To be a material disposal, you must:
- During the two-year period ending on the date of disposal, the taxpayer must have owned the firm, and
- The disposal must either represent the entire business or, if just a portion of the business is disposed of, this portion must represent a firm capable of operating independently. As a result, a single asset sale is unlikely to be eligible for BADR.
Property enterprises, with the exception of those that qualify as furnished holiday lettings businesses, are not eligible for BADR.
Assets used in a firm at the moment it is no longer in operation
There is a time lag between the end of a business and the disposition of the assets used in the firm in some cases (especially for single traders).
BADR may be available on the sale of assets in this scenario if the following material disposal conditions are met:
- The taxpayer must have owned the business for at least two years prior to its closure, and
- Within three years of the business ceasing, the asset must be sold.
It's worth noting that the asset just has to have been in use by the business at the time of cessation to qualify for relief, not necessarily for the entire two-year ownership period.
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