What is business assets disposal relief? - Boodle Hatfield

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15 Nov 2023

What is business assets disposal relief?

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Andrew Loan View profile
4 min read

Business assets disposal relief ("BADR") was formerly known as entrepreneurs' relief ("ER").  It is a capital gains tax ("CGT") relief which can apply where an individual makes a "material disposal" of "business assets".  Business assets can include the assets of a business carried on by the seller, or shares in a company, or similar assets held for an individual by trustees. 

In recent years, the conditions for BADR to apply have been tightened and its benefits have been reduced, but BADR can still save an individual investor up to £100,000 by reducing the rate of CGT from 20% to 10% on gains arising on sales of qualifying shares and other business assets.  

The relief is subject to a lifetime cap, currently £1m of gain per person.  ER replaced taper relief in 2008, and the lifetime allowance reached as high as £10m before it was cut back to £1m and the name of the relief was changed to BADR in 2020. 

Business sales

BADR can apply on a sale of a business (which can include associated assets) which has been carried on by the seller for at least 2 years. 

Share sales

In practice BADR is more frequently applied to a sale of shares which meets several conditions: 

  • the company is the individual's "personal company"; 
  • it is a trading company (or holding company of a trading group); 
  • the individual is an officer or employee of the company (or a company in the trading group); and 
  • all of these conditions have been met for at least 2 years immediately prior to the sale. 

To qualify as a "personal company", the relevant individual must hold at least 5% of the company's ordinary share capital (by reference to nominal value), which carry at least 5% of the voting rights, and at least 5% of the economic interest in the company (that is, 5% of the rights to distributions and rights to assets on liquidation, or 5% of the proceeds of sale of the entire company) 

Shares held jointly, or through transparent vehicles such as partnerships, should be treated as belonging proportionately to the relevant individuals. 

If the company's trade ceases after the conditions have been met for 2 years, BADR can continue to apply to disposals of the shares in the next 3 years. 

The period during which an individual holds EMI options counts towards the 2-year minimum holding period, so shares acquired by employees exercising EMI options can qualify for BADR immediately if EMI options were granted more than 2 years ago, as long as the other conditions are met. Individuals who acquire shares on the exercise of EMI options may qualify for BADR on the sale of their shares even if they do not hold at least 5% of the company's ordinary share capital.

Sales by trustees

BADR can also apply where trustees sell shares or other business assets and the trust has a "qualifying beneficiary" (broadly, an individual with an interest in possession in the assets sold), and the other conditions are met by reference to the position of the qualifying beneficiary. 


In a nutshell, for share sales:

  • When a UK resident individual sells shares in a company and realises a gain on that disposal, CGT usually applies at rates of 20% (for a higher or additional rate taxpayer). 
  • If BADR applies, the selling shareholder can achieve a 10% rate of CGT, on up to £1m of gains arising on a disposal of qualifying shares, after a 2-year minimum holding period. 
  • This £1m lifetime allowance for BADR is separate from the £10m lifetime allowance for investors' relief ("IR"). 
  • To qualify for BADR, for at least 2 years up to and including the date of disposal: 
    • The issuing company must be a trading company (or holding company of trading group).
    • The relevant individual must be an officer or employee of the company (or another company in the trading group). 
    • The relevant individual must hold at least 5% of the ordinary share capital, carrying 5% of the votes and 5% of the economic rights 
  • Unlike EIS, BADR does not require the company to conduct a "qualifying trade", so BADR can apply to activities that are excluded from EIS, including property dealers and developers, farming, forestry, hotels, and care homes. 

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