Business Asset Disposal Relief Claim (BADR) – 10% rate to increase in 2025 and 2006

Business Asset Disposal Relief (BADR) can help you reduce your capital gains tax bill if you sell your business. Prior to 2020, it was known as Entrepreneurs Relief.

Currently (2024), you can claim BADR up to a lifetime limit of £1 million, although this limit has changed several times since the scheme was first introduced in 2008.

In the autumn budget 2024, the Chancellor announced that the CGT BADR rate will increase in April 2025 and April 2026.

Here is a guide for business owners that explains BADR, how you qualify for relief, and how to claim it.

BADR (Aid for Entrepreneurs) Background

Entrepreneur relief was first introduced in 2008. Budget 2008 abolished gradual relief rules on business disposals and introduced a new fixed rate of Capital Gains Tax at 10%.

These measures meant that business owners who had built a business over many years, sometimes their entire lives, would have to pay a much higher rate of capital gains tax when they sold their business.

As this could deter entrepreneurs from setting up businesses, creating jobs and creating wealth, the government introduced Entrepreneurs’ Relief.

This new relief was designed to compensate business owners who would have paid a lower rate of Capital Gains Tax (CGT) under the previous gradual relief rules.

The BADR rate will increase in April 2025 and April 2026.

The reduced 10% BADR rate of capital gains tax will increase to 14% in April 2025 and 18% in April 2026 following an announcement in the Autumn Budget 2024. Investor Relief (IR) will also increase in the same quantities (see below).

The lifetime allowance has changed over time.

The relief allowed business owners to pay an effective 10% capital gains tax rate on business disposals up to a lifetime “allowance” of £1 million. In the first budget of 2010, Alistair Darling raised the lifetime limit to £2m.

This was extended to £5 million in the 2010 ‘Emergency Budget’, effective 23 June 2010, and to £10 million in the 2011 Budget, effective 6 April 2011.

The lifetime limit was reduced to £1m for disposals made after 6 April 2020.

People can claim ER as many times as they want, subject to the current lifetime limit.

Entrepreneur Relief (BADR): Qualifying as a Business Owner

To claim BADR, several conditions must be met during a 24-month “qualifying period” before the business is sold.

• During the qualifying period, you were a sole trader, officer (director/secretary) or employee of a limited company.
• During the qualifying period, you owned at least 5% of the capital and voting rights, if the disposal concerns a company.
• You can claim relief on the proceeds of the sale of all or part of a company, shares in a company or on the value of any business assets remaining after the company has ceased trading, provided you were a business partner of a company, or the sole owner of the business (if you were a sole trader).
• If the business ceased operations, this must have occurred no more than three years before the date of sale.
• If you are selling a “going concern”, the business must be financially viable at the time of sale.
• You cannot claim BADR for the disposal of non-business assets.
• You can claim as many times as you like, subject to a lifetime allowance. As of 6 April 2020, the Entrepreneur Lifetime Grant is £1 million. You will pay the standard CGT rate on any income over this limit.
• If the business is owned by a couple (spouse or common-law partner), each person can apply for ER if they meet the eligibility criteria listed above.
• Additional rules apply for the disposal of business assets after cessation of business, shares/securities and goodwill.

Investor Support Scheme continues to be entitled to a £10m lifetime allowance

Although Investors Relief is similar to BADR, it is a separate relief aimed at people investing in early-stage companies.

Applies to investors for qualified disposals made after April 6, 2019.

To meet the eligibility criteria as an investor, the following must apply:

• You must have owned the shares for at least three years before the disposal.
• You must have held the shares continuously during this period.
• The investment must be made in a commercial company or in the holding company of a commercial group.
• Investor relief is only available to investors who are not involved in the management of the business.
• Shares must not be listed on a major stock exchange, although those listed on AIM are permitted. This is about encouraging investment in smaller companies, not established ones.
• The shares must be newly issued and not acquired from another individual.

Significantly, the £10m lifetime limit still applies to Investor Relief (correct as of October 2024).

Like BADR, the investor relief rate will increase from 10% to 14% (April 2025) and 18% (April 2026).

Read the official guide here.

How is your BADR liability calculated?

1. Calculate your total CGT liability in relation to the disposal.
2. Withdraw your annual CGT allowance, if you’re eligible (£3,000 in 2024/25)
3. Your responsibility is 10% of the remaining amount.
4. Any CGT due beyond the £1 million lifetime limit is applied at the highest standard CGT rate (currently 20%). Please note that the highest rate will increase to 24% starting in April 2025.

What is the deadline to pay your BADR liability?

Your claim must be submitted to HMRC by the first anniversary of 31 January following the end of the tax year in which the qualifying disposal occurs.

For example, if you make an eligible disposal during the 2024/25 tax year (ending 5 April 2025), the claim must be made (and tax paid) by 31 January 2027.

How does BADR pay its liability?

You must complete the supplemental capital gains section of your annual self-assessment form.

If you are unable to do this, please make a complaint directly to HMRC in writing or by completing Section A of the Business Asset Disposal Relief Claim Form.

The rules are complex and you must meet several qualifying conditions before claiming Relief. For obvious reasons, we recommend reading the official guide and talk to your accountant before filing a claim.