Pixel

Claiming Business Asset Disposal Relief in 2021

Gary Green
Gary Green
July 2, 2021

Business Asset Disposal Relief (BADR) used to be known as Entrepreneurs’ Relief before 6 April 2020. The relief was renamed in Finance Act 2020. The name change does not affect the operation of the relief.

BADR can be a valuable relief and applies to the sale of a business, shares in a trading company or an individual’s interest in a trading partnership. Where this relief is available a reduced CGT rate of 10% is payable in place of the standard rate. There are a number of qualifying conditions that must be met in order to qualify for the relief.

Qualifying limits to claim BADR

When the relief was first introduced there was a lifetime limit of £1 million for gains. The lifetime limit has changed over the years and was reduced to £1 million (from £10 million) on 11 March 2020.

The £1m lifetime limit means that individuals can qualify for the relief more than once subject to an overriding total limit of £1m of qualifying capital gains. The changes to the lifetime limit are not retrospective.

Qualifying conditions to claim BADR

There are qualifying conditions that must be met to ensure you are eligible to benefit from the lower 10% rate.

If you are selling all or part of your business, then both of the following must apply in order to qualify for relief:

  1. You must be a sole trader or business partner; and
  2. You must have owned the business for at least 2 years before the date you sell it.

The same conditions apply if you’re closing your business instead. You must also dispose of your business assets within 3 years to qualify for relief.

If you are selling shares or securities in the business, then you must be an officeholder or employee of the company and own at least 5% of the company and have at least 5% of the voting rights for at least 2 years before you sell your shares. The minimum period during which certain conditions must be met in order to qualify for BADR increased from one to two years from 6 April 2019.

You must also be entitled to at least 5% of either the:

  • profits that are available for distribution and assets on winding up the company; or
  • the disposal proceeds if the company is sold.

The company must also be a trading company or the holding company of a trading group. If the number of shares you hold falls below 5% because the company has issued more shares, you may still be able to claim BADR. The rules are different if your shares came from certain Enterprise Management Incentive schemes.

How to calculate a BADR claim

HMRC sets out the following steps for making a qualifying claim for BADR:

  1. Work out the gain for all qualifying assets
  2. Add together the gains (and deduct qualifying losses) to work out the total taxable gain that’s eligible for BADR
  3. Deduct your tax-free allowance
  4. You’ll pay 10% tax on what’s left

How to claim BADR relief

There are two ways you can claim BADR. The most common way is by using your self-assessment tax return. Capital gains summary (SA108) is used to record capital gains and losses.

A claim can also be made by filling in Section A of the Business Asset Disposal Relief helpsheet – HS275.

Deadline for making a BADR claim

The deadline for making a claim is the first anniversary of 31 January following the end of the tax year in which you made the qualifying disposal. For example, if you sell your business at any time between 6 April 2020 and 5 April 2021 then you will need to claim this no later than 31 January 2023.

Investors’ Relief

There is also a sister relief called Investor’s Relief which has a separate £10 million lifetime cap. Investors’ Relief is available to investors in qualifying shares of an unlisted trading company. There are many conditions to qualify for the relief and it is important to consider the relief from the outset, as many of the conditions need to be met for the whole period of share ownership. Investors’ Relief is not available if the investor, or anyone connected with the investor, is an officer or employee of the company.

If you have any questions about the issues raised in this article, we at Key Business Consultants can help. Get in touch with us today or call us directly on 02037 282 848.

Interested in our services?
Fill in your details and a member of our experienced team will be in touch shortly to discuss your needs.
We adhere to strict GDPR rules and do not reveal or sell your data to any third-parties. For more, please read our Privacy Policy.
Latest Insights
October 13, 2021
What is the Restart Grant and How Do I Apply?

The COVID-19 global pandemic had a detrimental effect on many businesses, but there were some sectors...

September 27, 2021
Choosing The Correct VAT Scheme For Your Business

Choosing the right VAT scheme is an important step for small business owners and can have a considerable...

September 21, 2021
How to Claim EIS Income Tax Relief in 2021

If you need to know how to claim EIS income tax relief and enjoy what is...

September 2, 2021
Recovery Loan Scheme - What Is It and How Do I Apply?

As businesses seek to re-open and recover from the global pandemic, there are various forms of...

August 16, 2021
The Super-Deduction Scheme - How Does It Work?

You may have heard the term 'super-deduction' recently and wondered if you could be affected by...

August 12, 2021
The Tax Benefits of Non-Domiciled Status for UK Residents

Having a Non-Domiciled Status if you reside in the United Kingdom can have great benefits for...

July 9, 2021
Stamp Duty Land Tax (SDLT) Surcharge for Non-UK Residents

Stamp Duty Land Tax (SDLT) rates have changed again for non-residents buying a home in England...

July 7, 2021
How Is Cryptocurrency Taxed & Do I Need to Fill A Self-Assessment?

Cryptocurrency may live online with no government control or borders, but if you are in the...

July 5, 2021
Venture Capital Schemes: Tax Relief Guide For Investors

When it comes to finding out what tax relief is available for investors using a venture...

View Our latest insights »
Get the latest UK tax & business news and guidance delivered straight to your inbox
We care about the protection of your data. No spam. Unsubscribe anytime.
Copyright © 2021 Key Business Consultants LLP. Reg: E&W OC389322
linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram