Business Asset Disposal Relief means you will pay Capital Gains Tax at the rate of 10% on gains on qualifying assets.
CGT is a tax on chargeable gains made by individuals, trusts or personal representatives.
Companies pay corporation tax on gains that they make. This note is mainly about individuals.
Most individuals (excluding non UK domiciled individuals claiming the remittance basis) qualify for an annual exemption.
This is an amount that can be earned tax free each year.
For the year ending 5 April 2023-24, the Annual Exemption is now £6,000 for individuals and £2,000 for most trusts. April 24-25 and subsequent tax years it will be reduced further to £3,000 for individuals and £1500 for trusts.
For Trusts the Annual Exemption is £6,150, shared equally between the number of trusts created by the same settlor (minimum £1,230).
The rate of CGT payable depends on your other income:
(England and Northern Ireland. Same in Wales but not Scotland)
|Residential property||Other Gains|
|Up to Income tax basic rate (2021/22: £37,700)||18%||10%|
|Above Income tax basic rate||28%||20%|
The rates above assumes the residential property does not qualify for the main residence exemption.
Business Asset Disposal Relief (BADR) allows individuals and some trustees to claim relief on qualifying gains. It will mostly be available to
The relief effectively reduces the rate of CGT to 10% for qualifying gains up to a lifetime maximum.
From 11 March 2020, this lifetime maximum is the first £1 million of qualifying gains.
Previous ER limits were:
A claim must be made for the relief within 22 months from the end of the tax year in which the disposal occurred.
Couples may claim as long as they individually satisfy the eligibility criteria.
If you are disposing of all or part of your business
To qualify for relief, for at least 2 years up to the date you sell your business:
The same conditions apply if you are closing your business. In this case you must also dispose of your business assets within 3 years of ceasing to trade to qualify for relief.
If you are selling shares or securities
To qualify, for at least 2 years up to the date you sell your shares:
If your shares are acquired by exercising an Enterprise Management Incentive (EMI) option
You must have:
If the shares are not from an EMI
For at least 2 years before you sell your shares, the business must be your ‘personal company’.
“Personal company” means that you have at least 5% of both the:
You must also be entitled to at least 5% of either:
Other share transactions
A BADR claim may still be made if the number of shares you hold falls below 5% because the company has issued more shares.
If the company stops being a trading company, you can still qualify for relief if you sell your shares within 3 years.
Disclaimer: This note does not contain a full statement of the law and it does not constitute legal advice. Please contact us if you have any questions about the information set out above.