If you’re running a business, using BADR can really help you with your tax bill if you ever sell some or all of your company. By selling things like shares in a trading company or your stake in a trading partnership, you’ll qualify for a lower CGT rate. If you want to exit your business, BADR still applies, but you should know that tax changes may affect both the timing and amount of your taxes.
It’s important to find out about BADR, especially if you’re changing or selling your business, and get professional advice from accountants to manage your taxes and obligations.
Let’s look at how Business Asset Disposal Relief works
With BADR, you can reduce the CGT you have to pay on qualifying business sales. Thanks to this reduction over the years, people paid only 10% CGT on all their lifetime gains if they don’t go past the given limits. In comparison to regular CGT, this is a big deal, particularly if you’re in the high tax bracket and sell a major asset for capital gains, your tax rate will rise a lot more.
BADR is available to:
People who run their own business can sell all or some of their shares.
People in trading partnerships who leave and sell their share can use BADR.
If you are a director or a Employee in a trading company and sell shares within certain share requirements, the relief can be claimed.
Some rules must be followed in order to qualify, and one of these is having the asset for at least two years before you sell.
CGT rate changes in BADR
The Budget from last Autumn said that important changes to BADR will affect how tax is calculated on asset sales from April of 2025. The BADR 10% CGT rate is no longer available now. This means the rate will go up over time, so now is the right time to get your plans together.
You can see from the breakdown below what to expect next:
Until 5 April 2025: You only pay a 10% rate on BADR qualifying gains.
6 April 2025 to 5 April 2026: The rate increases to 14%.
6 April 2026 onwards: The rate further increases to 18%., new rules are being put in place to stop people from changing their transaction dates for tax benefits. These rules exist solely to see that taxes are charged properly based on when the transaction happens, not just on the paperwork.
Lifetime Limit Remains Crucial
There is still a £ 1m lifetime limit for BADR. The cap applies to all the qualifying gains you claim over the entire course of your life. If you go beyond this total, you’ll have to pay the usual rate of Capital Gains Tax on any extra benefit.
It’s a good idea to keep track of all your gains and file your claims with HMRC correctly. It’s common for small business owners to hit the £1 million cap sooner than they thought, most often in sectors where assets or shares have a higher value.
By working with accounting specialists, you can make sure you make the most of your tax breaks and avoid any trouble with penalties.
Investors’ Relief: Aligned with BADR Changes
Similar changes are happening to investors’ Relief that covers Individual investors in unlisted trading companies. The Lifetime Limit for Investors’ Relief will match that of the BADR starting from 30 October 2024, so the Lifetime Limit will be £1 million, instead of £10 million.
Also, the Investors’ Relief will have the same CGT rates used for BADR after this change: 14% from April 2025 and 18% from April 2026. The change is part of a wider government effort to simplify how reliefs are given and make sure every investment category gets a fair break.
Conclusion
For anyone considering selling a business, the rise in CGT rates doesn’t take away the benefits of Business Asset Disposal Relief. But to really make the most of this benefit, you need to set up your plans in advance and keep up with the latest rule changes.
Thinking of Exiting soon or just beginning to think it over? You ought to go over your position now. Getting advice from tax professionals and trusted accountants can help you get the relief you are entitled to and stay within the law.