Business Asset Disposal Relief (Entrepreneurs' Relief)

What Is Business Asset Disposal Relief?

Business Asset Disposal Relief (BADR) — formerly known as Entrepreneurs’ Relief — reduces the rate of Capital Gains Tax to 10% on qualifying business disposals. Without this relief, gains would be taxed at 20% (for higher and additional rate taxpayers), so BADR can halve the tax bill on the sale of a business or shares.

The relief applies to gains up to a lifetime limit of £1 million, which means the maximum tax saving over a person’s lifetime is £100,000 (10% saved on £1 million of gains).

Qualifying Conditions

BADR is available to individuals (not companies or trusts) who dispose of:

1. All or Part of a Business

You qualify if you:

• Dispose of the whole or part of a business you have carried on as a sole trader or through a partnership
• Have owned and operated the business for at least 2 years ending on the date of disposal
• Are disposing of business assets used in the trade (not investment assets)

2. Shares in a Personal Company

You qualify if:

• The company is a trading company (or holding company of a trading group)
• You hold at least 5% of the ordinary share capital
• The shares carry at least 5% of the voting rights
• You are entitled to at least 5% of distributable profits and 5% of assets on winding up
• You are an officer or employee of the company (or a group company)
• All conditions have been met for at least 2 years ending on the date of disposal

3. Assets Used in Your Personal Company or Partnership

You can claim on the disposal of an asset (such as a building) that you own personally but which has been used by your trading company or partnership for at least 2 years, provided:

• You dispose of the asset within 3 years of the business or your involvement ceasing
• You also dispose of at least 5% of your partnership interest or shares at the same time

The 2-Year Qualifying Period

The 2-year qualifying period is a continuous period ending on:

• The date of disposal (for sales)
• The date the business ceased (if disposing of assets after cessation, the disposal must be within 3 years of cessation)

All qualifying conditions must be met throughout this entire 2-year period. A gap or break in meeting any condition can disqualify the claim.

Lifetime Limit

The lifetime limit is £1 million of qualifying gains. Key points:

If you have previously claimed BADR (or the old Entrepreneurs’ Relief), those gains count towards your lifetime limit.

Historical Lifetime Limits

How to Calculate the Relief

1. Calculate the chargeable gain on the disposal
2. Deduct any available losses and the Annual Exempt Amount (£3,000 for 2024/25)
3. Apply the 10% BADR rate to qualifying gains up to the remaining lifetime limit
4. Any gain above the lifetime limit is taxed at the standard CGT rates (10% or 20%)

Example

Without BADR, if the shareholder is a higher rate taxpayer, the tax would be £747,000 × 20% = £149,400. BADR saves £74,700.

How to Claim

BADR must be claimed — it is not applied automatically. The claim is made on the self-assessment tax return (pages CG1 and CG2) for the tax year in which the disposal takes place.

The deadline for claiming is the first anniversary of 31 January following the tax year of disposal. For a disposal in 2024/25, the claim must be made by 31 January 2027.

Trading Company Requirement

For share disposals, the company must be a trading company. This means its activities must consist wholly or mainly of trading (HMRC interprets “mainly” as more than 80%). Activities that can disqualify a company include:

• Holding investment property that generates substantial rental income
• Holding large amounts of cash or investments not needed for the trade
• Non-trading activities that are more than incidental

If a company’s non-trading activities exceed roughly 20% of its overall activities (measured by income, assets, expenses, and employee time), it risks losing trading company status and BADR will not be available.

Joint Ventures and Partnerships

Partnerships

Partners in a trading partnership can claim BADR on the disposal of their partnership interest, provided they have been a partner for at least 2 years.

Joint Ventures

BADR can apply to shares in a joint venture company if the investing company is a trading company and the joint venture is also a trading company. Individual shareholders in the investing company can potentially claim through the investing company.

Associated Disposals

An associated disposal is where you dispose of an asset you own personally that has been used by your partnership or personal company. For the gain on this asset to qualify for BADR:

• You must also be disposing of at least 5% of your partnership interest or shares
• The asset must have been used in the business for the 2-year qualifying period
• Any period of non-business use reduces the qualifying gain proportionally

If you charged the business a market rent for using the asset, the gain attributable to the rental period does not qualify for BADR (since it was an investment use, not a business use).

Interaction with Other Reliefs

BADR interacts with several other tax reliefs and exemptions:

• Annual Investment Allowance — capital allowances claimed on business assets reduce the base cost for CGT purposes
• Rollover relief — gains deferred through rollover relief are not immediately subject to CGT but will use the BADR lifetime limit when they crystallise
• Investors’ Relief — a separate relief with a £10 million lifetime limit for external investors in unlisted companies, taxed at 10%
• Corporation tax — BADR does not apply to companies; they pay corporation tax on chargeable gains

Record Keeping

To support a BADR claim, you should maintain:

• Share certificates and records of share purchases and disposals
• Partnership agreements and evidence of partnership interest
• Company records showing trading status and your role as officer or employee
• Evidence that all qualifying conditions were met for the 2-year period
• Records of any previous BADR or Entrepreneurs’ Relief claims

Thorough accounting records are essential, particularly for demonstrating the trading company test and the 2-year qualifying period.