How does Business Asset Disposal Relief (BADR) affect Capital Gains Tax?

Business Asset Disposal Relief (BADR), formerly known as Entrepreneurs' Relief, is a significant relief under Capital Gains Tax (CGT) designed to encourage investment and entrepreneurship. It reduces the CGT rate payable on the disposal of qualifying business assets.

### The Relief Mechanism

When BADR applies, the lifetime limit for gains qualifying for the relief is USD 1 million. Any qualifying gains up to this limit are taxed at a reduced rate of 10%, regardless of the individual's standard income tax band or the standard CGT rates for assets.

### Qualifying Conditions

To qualify for BADR on the disposal of a business or shares in a company, the following conditions must typically be met for at least two years leading up to the date of disposal:

• Personal Company Shares: You must have owned at least 5% of the ordinary share capital, 5% of the voting rights, and be an officer or employee of the company.
• Trading Business Disposal: If disposing of a whole or part of a trading business, you must have been a sole trader or business partner.
• Business Cessation: If you ceased trading, the relief may still be available if the disposal happens within three years of cessation.

### Assets that Qualify

Qualifying assets include:

• The disposal of an entire trading business.
• The disposal of shares or securities in a trading company.
• The disposal of assets used in a trading business carried on by an individual or partnership.

Assets that generally do not qualify:

• Shares in non-trading companies (e.g., investment holding companies).
• Assets used mainly for investment purposes (e.g., rental properties, unless they form part of a wider, active trade).

### Claiming BADR

BADR must be formally claimed by the first anniversary of the 31 January following the tax year of disposal. For instance, if a business is sold in July 2024 (in the 2024/25 tax year), the claim must be made by 31 January 2027. The claim is usually made on the Self-Assessment tax return.