What is Business Asset Disposal Relief (BADR)?

What is Business Asset Disposal Relief (BADR)?

Formerly known as Entrepreneurs’ Relief, Business Asset Disposal Relief is a tax relief scheme that reduces the amount of Capital Gains Tax payable on the disposal of an entire business or its assets (including shares) to just 10%. 

Business Asset Disposal Relief (BADR) is only available to a business’s owners, employees and office holders. Those who invest or have shares in a business but do not own or work for it are not eligible.

Given the substantial savings you can make, it’s important to understand what Business Asset Disposal Relief is, how you can claim it and whether you’re eligible. 

What qualifies for Business Asset Disposal Relief?

Business Asset Disposal Relief is available to sole traders and partners disposing of their interests in a business, and directors and employees selling shares in a company they work for. The eligibility criteria for each of these groups are as follows:

Selling all or part of a business

Business owners can qualify for BADR when they sell all or part of their business if they:

• Operate as a sole trader or partner of a trading business
• Have owned the business for at least two years

Individuals can also claim BADR on the sale of business assets when they close their business. In this case, the asset must be sold within three years of the business’s closure.

Selling shares in a business

Individuals may also be eligible for Business Asset Disposal Relief if they sell shares in a company they work for and: 

• Are an office holder (such as a director) or employee of a trading company
• Have been an employee or office holder for at least two years
• Hold at least 5% of both the company’s ordinary share capital and voting rights
• Are entitled to at least 5% of either the company profits or disposal proceeds

Business Asset Disposal Relief when closing a limited company

If you close a limited company using a solvent liquidation procedure, the business’s assets are sold and the proceeds are distributed among its shareholders. Rather than being taxed as income, these profits are regarded as capital distributions and are subject to Capital Gains Tax.

In this case, you may be eligible for Business Asset Disposal Relief if you have at least a 5% shareholding in the company and the company has been trading for at least two years before its closure.

How to claim Business Asset Disposal Relief

You can claim Business Asset Disposal Relief any time you sell a business or the shares you hold in it, as long as you meet the qualifying criteria. You can claim the relief through your Self Assessment tax return or by completing Section A of the Business Asset Disposal Relief helpsheet.   

You must make your claim within one year of the 31 January following the tax year of the disposal. For example:

• You must claim BADR by 31 January 2025 for disposals made during the 2022-23 tax year.
• You must claim BADR on disposals made during the current tax year (2024-25) by 31 January 2027.

If you liquidate your business, it is the date the funds are distributed rather than when the disposal is made that is important. That is the date you must declare when completing your tax return. 

Need help selling a business or disposing of assets?

If you want to sell a business or a commercial asset, we can help. Our business transfer and asset sales agents can guide you through the process and help you determine whether you are eligible for Business Asset Disposal Relief. Get in touch with our team for a free, no-obligation appraisal.