Business Asset Disposal Relief, formerly known as Entrepreneurs’ Relief, is a tax incentive in the United Kingdom that is designed to encourage entrepreneurship and investment in businesses.
As an accountant with expertise in mergers and acquisitions and preparing businesses for sale, you are likely to have a keen interest in understanding how BADR can benefit you when you sell your business.
In this article, we’ll explore what BADR is, how it works, and why it’s an important consideration for business owners and investors.
What is Business Asset Disposal Relief (BADR)?
BADR is a tax relief scheme that reduces the amount of Capital Gains Tax (CGT) payable when business assets are disposed of. This relief is available to individuals who sell or dispose of all or part of their business, shares in their company, or certain assets used in their business.
The aim is to reward and incentivise entrepreneurs and business owners for their hard work, risk-taking, and investments.
Key Eligibility Criteria
To benefit from BADR, there are certain criteria that must be met:
▶️Ownership: The individual must have owned the business for at least two years before the date of disposal.
▶️Participation: They should have been an officer or employee of the company (or a company in the same trading group).
▶️Ownership Percentage: The individual should hold at least 5% of the company’s ordinary share capital and voting rights.
▶️Trading Status: The business must be a trading company or the holding company of a trading group. It should not be mainly involved in non-trading activities, such as investment.
▶️Minimum Ownership Period: The above conditions should have been met for a continuous period of two years before the date of disposal.
The Benefits of BADR
BADR offers several advantages to entrepreneurs and business owners:
✅ Reduced Tax Liability: One of the primary benefits is a reduced rate of Capital Gains Tax. At the present time the rate is 10% on qualifying gains, up to a lifetime limit of £1 million. However, tax rates and thresholds may change, so it’s crucial to check the latest updates.
✅ Incentive for Investment: BADR acts as an incentive for individuals to invest in businesses and encourages the growth of small and medium-sized enterprises (SMEs)
✅ Selling and Succession Planning: It is especially valuable for business owners looking to sell their businesses or transfer them to the next generation of business owners
✅ Mergers and Acquisitions: For individuals involved in mergers and acquisitions, BADR can be a critical consideration in the tax planning process
How to Claim BADR
Claiming BADR involves several steps:
▶️Determine if you meet the eligibility criteria
▶️Calculate your gains and losses from the disposal of business assets
▶️Complete the necessary tax forms, including the Capital Gains Tax return
▶️Claim BADR on your tax return
▶️Pay any tax due within the required time frame
It’s important to note that tax rules and regulations can change, so it’s advisable to consult with a tax expert or accountant who is well-versed in these matters to ensure that you’re making full use of the relief.
In Conclusion
Business Asset Disposal Relief is a valuable tax relief scheme designed to reward entrepreneurs and investors for their contributions to the business world. If you meet the eligibility criteria, it can result in substantial tax savings, making it an important consideration when selling your business. However, given the potential for changes in tax law, ongoing education and consultation with tax experts are essential to maximise the benefits of BADR.
Remember, when it comes to tax matters, seeking professional advice tailored to your specific situation is always a wise move.
Getting Help With Business Asset Disposal Relief
As a qualified accountant and private investor who has bought and sold a number of businesses personally I understand how BADR works and how you can benefit from it.
If you need help with BADR then contact us today
