Usually when you take out money from your business and it is trading you will either pay tax on income either as income tax or on dividends. The company pays corporation tax.
However, when you sell your business, it is subject to capital gains tax ( “CGT), currently 20%. There is a reduction to 10% for the first £1m of CGT if you have a qualifying business. This lower 10% is often referred to as Entrepreneurs’ Relief but was renamed as Business Asset Disposal Relief (“BADR”) in 2020.
Business Asset Disposal Relief (BADR) or Entrepreneurs Relief Advice
Entrepreneurs’ Relief was replaced by Business Asset Disposal Relief ( “BADR”) by the Chancellor of the Exchequer Rishi Sunak in 2020. One main change was that lifetime limits on distributions, which had previously been £10 million, were reduced to £1 million.
In order to obtain this benefit you must meet HMRC’s qualifying conditions and each individual is subject to a lifetime limit.
You can qualify for BADR if you are:
Selling all or part of your business
Selling shares or securities
Selling assets you lent to the business
Members voluntary Liquidation
You cannot claim BADR on the disposal of property. However, if you dispose of your company as a whole, and it holds a property this is allowable.
Who qualifies for BADR?
BADR can be granted to individuals and some trustees of settlements (unlikely if discretionary), but it is not available to corporate entities.
To claim (BADR on the sale of you must be a sole trader or business partner and you must have been an owner for at least two years. The company must be a “personal business” which means that you must have at least 5% of both the company’s shares and voting rights. Additionally, you must be entitled to at least 5% of the profits.
It is available to each shareholder, so shares owned by a husband and wife both would have the £1m available for BADR. There is no limit to the amount of times you can claim BADR up to a cumulative gain of £1 million.
For further information and impartial advice, feel free to contact our founders at Dexterity Partners.