Business Asset Disposal Relief (“BADR”) – Formerly Entrepreneurs’ Relief Print

BADR provides for gains on the disposal of qualifying business assets to be charged at the rate of 10%. There is an upper limit of lifetime gains which may benefit from this reduced rate of CGT, and from 6 April 2020 this has been substantially reduced to £1m, from the previous limit of £10m.

BADR must be claimed by the first anniversary of 31 January following the end of the tax year in which the qualifying business disposal is made. (I.e. for a disposal during 2021/22, the claim must be made by 31 January 2024)

The relief may be claimed where the sale relates to the material disposal of business assets. Such disposals are defined as:

Shares or securities in a trading company of which the vendor is an officer or employee who:

Is entitled to at least 5% of the assets on a winding-up of the company, and to 5% of the distributable profits, or

On a disposal of the whole of the ordinary share capital of the company, be beneficially entitled to at least 5% of the proceeds.

The entire business, or part of the entire business carried on by an individual, either solely, or in partnership, or

Assets of a business in use at the time at which a business ceases to be carried on by the individual, either solely or in partnership.

BADR is denied where a sole trader or partnership transfers goodwill to a related close company.

The relief will be due provided the asset has been held for a period of at least 2 years ending with the date of disposal. For disposals before 6 April 2019 the holding period was 1 year.

Any shares acquired on the exercise of a qualifying EMI option (or qualifying replacement option), provided that the date of grant of the option was not less than 2 years before the date of disposal of the shares. This period was 1 year for disposals before 6 April 2019.

Throughout the period of 2 years prior to the disposal, the company must be a trading company and the individual must be an employee or officer of the company. This period was 1 year for disposals before 6 April 2019.


John, a higher rate taxpayer, is an employee and 10% shareholder of a trading company. He acquired his 10% shareholding in the company in May 1995 at a cost of £100,000. He sells his shares in September 2021 for £8,000,000. He has other gains which use up his annual exemption and has not used any part of his BADR lifetime allowance. His CGT liability on the shares is calculated as follows:

Sale Proceeds 8,000,000
Deduct: Original Cost 100,000
Taxable gain 7,900,000
Tax thereon – 1,000,000 @ 10% 100,000
Tax thereon – 6,900,00 @ 20% 1,380,000
CGT Payable 1,480,000

Following this disposal John has no unused BADR for offset against future disposals of qualifying business assets.

BADR may also be claimed in respect of a disposal associated with a material disposal of business assets where:

The disposal is made as part of the individual’s withdrawal from participation in the business of the partnership or company, and

Throughout the period of 2 years immediately preceding the disposal of the business assets, or the cessation of the business, the assets are used for the purposes of the business. In line with the other changes outlined above, this period was extended to 2 years with effect from 6 April 2019.

Where commercial property owned by a shareholder is disposed of as part of a material disposal of the individual’s shareholding, BADR is not available if a commercial rent is paid for the use of the premises. The restriction is based on the market value of the rent received, so a proportion of the relief may be due where the rent paid is less than full market value. There is no requirement for the commercial property to be disposed of to the same person acquiring the shares.

BADR allows gains which are deferred into investments which qualify for either EIS Deferral Relief, or Social Investment Tax Relief to remain eligible for BADR when the subsequent investment is realised.

If an individual’s shareholding has been diluted down below 5% before 5 April 2019 then the shareholder loses his entitlement to any BADR on a subsequent disposal. Where, by reason of a relevant share issue, dilution below 5% takes place on or after 6 April 2019 the affected shareholder can elect (under the provisions of Section 169SC TCGA 1992) to be treated as if he had disposed of his shares immediately before the relevant share issue, and having reacquired them immediately after the event. The effect of this is to trigger a charge to CGT at a time when the shares still qualify for BADR. As this would be a dry tax charge, a further provision has also been introduced whereby an individual who makes an election under Section 169SC may also elect (under the provisions of Section 169SD TCGA 1992) to defer the charge to CGT until there is a subsequent disposal of the shares.

For the above purposes a relevant share issue is defined as an issue of shares by the company where:

The shares are issued by the company for consideration consisting wholly of cash, and

The shares are subscribed, and issued, for genuine commercial reasons and not as part of arrangements the main purpose, or one of the main purposes, of which is to secure a tax advantage to any person.

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