The following Owner-Managed Businesses guidance note Produced by Tolley provides comprehensive and up to date tax information covering:
Business asset disposal relief (BADR), previously known as entrepreneurs’ relief, is a capital gains tax (CGT) relief that allows business owners with chargeable gains on qualifying business assets to pay CGT at a rate of 10%. This relief is available on up to £1m of capital gains for each individual over their lifetime and is available on gains arising to sole traders, partners, shareholders and trusts. Prior to 11 March 2020, the lifetime limit was £10m. Relief applies to all disposals, so BADR should be considered when succession planning involves gifting business ownership, as well as in relatively straightforward sales of a business.
The general rules for BADR are detailed in the Conditions for business asset disposal relief guidance note, but this note focuses solely on the application to disposals linked to shares and securities in personal companies or disposals of enterprise management incentive (EMI) shares.
Other guidance notes relevant to BADR are:
Business asset disposal relief for sole traders
Business asset disposal relief for partnerships
Maximising business asset disposal relief
Business asset disposal relief (entrepreneurs’ relief) ― trusts
HMRC guidance can be found at CG63950P onwards and the relevant legislation is at TCGA 1992, ss 169H–169SH.
An individual may claim BADR on gains arising from shares or securities in a company provided there is a:
‘material disposal of business assets’, or
an ‘associated disposal’ where an asset is disposed of which is associated with a relevant material disposal’, eg where an asset is owned personally but used for the purpose of the business carried on by a company
TCGA 1992, s 169H(2)
If a disposal does not constitute either of the above, then BADR is not available. Given that an associated disposal is contingent on there being a material disposal, it is therefore essential that the first step in ensuring availability of BADR is that there is a material disposal. For a subsequent disposal to qualify as an associated
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