What is Business Assets Disposal Relief (BADR)?

Are you planning to exit your business within the next 5-10 years? Perhaps your plans are more immediate?

Whether you’re planning to retire to a sunny beach, or embark on a new venture—you’ve likely come across Business Assets Disposal Relief (BADR). This nifty piece of tax legislation can soften the blow of the Capital Gains Tax (CGT) bill that will inevitably land when you sell or wind up your business.

But what exactly is BADR, how does it work, and most importantly, how can it help you save money? Let’s break it down, with just the right mix of insight and wit (because that’s definitely important).

What is BADR (and Why Should You Care)?

Previously known as Entrepreneurs’ Relief, BADR was renamed in 2020, possibly because "entrepreneurs" sounded a bit too glamorous for the taxman’s liking. The principle, however, remains the same: BADR allows you to pay a reduced CGT rate of 10% on qualifying business disposals. That’s a considerable saving, compared to the standard rates, which can soar to 20% or more for higher earners. Ouch.

It’s a sweetener for those who feel brave enough to eventually part with their business. Think of it as the government’s way of saying: “Thanks for the memories—and the tax revenue.”

How can you qualify for BADR?

To claim BADR, the disposal must involve a material reduction in business operations. This isn’t about flogging old desks or upgrading your IT equipment—it’s about big decisions like: 

- Selling the business outright 

- Winding it up to release capital 

- Passing it on as a gift (perhaps to suspiciously eager offspring) 

Making such a big decision takes time and careful thought. It’s worth doing your homework to make sure the decision you make is right for you, and anyone who benefits from it.

What about sole traders and partnerships?

Selling part of your business can qualify, but only if the part sold can operate independently. For instance, selling one of two bakeries might qualify; selling the smaller bakery that depends on the larger one for supplies probably won’t.

What Assets Are Eligible?

I thought it would be easier to break this down into bullet points. Something to bear in mind - just because your exact circumstances aren’t listed, does not mean you cannot benefit from BADR. That’s the time to ask an accountant.

●         Business Interests: Sole traders or partners selling all or part of their business are eligible if they’ve owned it for at least two years. 

●         Shares in a Limited Company: If you own at least 5% of a "personal company" (shares and voting rights) and have held them for two years, you’re good to go. 

●         EMI Shares: For employees with EMI options, the qualifying period begins when the options are granted, not exercised—a rare gem in the tax world! 

Unfortunately non-trading assets, such as buy-to-let properties or investment portfolios, don’t make the cut unless the business remains primarily trading (no more than 20% of activity being non-trading).

How Much Can You Claim?

The current lifetime limit for BADR is £1 million, although it was a generous £10 million when it was Entrepreneurs’ Relief (that’s probably NOT what you want to hear). It’s still a substantial saving, but BADR’s days might be numbered. If you qualify, now’s the time to take advantage before the Treasury changes its mind.

How to claim BADR: A Practical Guide 

After determining that your disposal qualifies, you can claim BADR through your self-assessment tax return, due by 31 January following the tax year of disposal.

Alternatively, you can submit a paper claim using form HS275. Be sure to include detailed calculations—this isn’t a time for creative accounting. 

Why Get Professional Advice? 

Tax reliefs like BADR are invaluable but fraught with complexity. Missteps can cost you dearly, not just in CGT but potentially in other areas like inheritance tax. Seeking expert guidance can ensure you don’t leave money on the table—or hand over more to HMRC than necessary.

If you’re planning an exit, or even just toying with the idea, it’s worth having a conversation about tax planning. After all, the best part of entrepreneurship is finishing your journey on your terms—preferably with the lowest possible tax bill.