Formerly known as Entrepreneurs Relief, Business Asset Disposal Relief (BADR) offers a reduced Capital Gains Tax (CGT) rate on asset and business sales. BADR can be maximised by individuals through the process of dividing shares between family members before selling, allowing cash flow to be optimised, benefitting you and your loved ones in the long run.
As experts in tax services, for guidance through this BADR process, reach out to Williamson and Croft today and we’d be happy to help you navigate the complexities of the sector. Helping you streamline your operations and maximise your profits, we are accounting specialists who focus on innovating and improving business from different sectors across the UK.
Want to find out how you can make the most out of BADR for family members? Let’s start with the basics.
What is Business Asset Disposal Relief (BADR)?
Known as Entrepreneurs Relief before 6th April 2020, by using BADR you can receive a reduced CGT rate on business and asset sales. This relief incentivises people to grow and invest in their own businesses. If you qualify you will be taxed 10%, but this will be increased to 14% on 6th April 2025, and will further rise to 18% on the 6th April 2026.
Eligibility requirements for BADR vary greatly depending on the sale. For example, if you wish to sell part, or the whole, of your business you must have been a sole trader or a business partner for two years and you must have owned the business for at least two years. Meanwhile, different standards apply if you’re selling shares. To qualify for BADR when selling shares, you must have been an employee or office holder of the company for at least two years and the company’s main activities must be in trading.
How can Business Asset Disposal Relief (BADR) benefit family members?
If business owners or shareholders wish to maximise their BADR for the benefit of their family members, considerable planning has to be put in place. If shares are transferred to family members prior to a sale, gift hold-over relief can be used to avoid CGT. This allows family members to pay a reduced rate of tax and thus maximise the funds made from the sale.
The Wilkinson Case Study
The benefits outlined in the previous section were directly achieved by Mr and Mrs Wilkinson in a 2023 tribunal case. The case detailed how the Wilkinsons, four days prior to the sale of their company, transferred shares to their three daughters. This allowed the family to claim gift hold-over relief, meaning that they were not liable for the same rate of CGT.
A year after the sale of the company each of the daughters redeemed loan notes for £10m and resigned from their directorships a day later, each claiming BADR on their CGT.
Ever since this case, BADR benefits have become more restrictive. For example, the qualifying period has been increased from one year to two and chargeable gains that can qualify for the BADR 10% relief rate have been capped and reduced from £ 10 million to £1 million.
What Williamson and Croft can do for you
While the benefits of BADR for family members have been reduced thanks to the tribunal case of the Wilkinson family in 2023, there remain advantages to using BADR for family members. Looking to take advantage of this tax relief? Get in touch with us today and we can take you through the process of BADR to see if you’re eligible.
But, we don’t just specialise in BADR, at Williamson and Croft we are experts in all areas of tax, and can even help you with client-specific transaction services and R&D credit solutions among other tools. To help you with financial guidance to streamline your operations and optimise your cash flow, you can contact Williamson and Croft no matter if you’re looking for accountancy for your technology and software company or comprehensive financial guidance for professional services.