Business Asset Disposal Relief Explained
A reduced Capital Gains Tax rate of 10% when you sell all or part of a qualifying business, up to a £1 million lifetime limit. Previously known as Entrepreneurs' Relief.
What is Business Asset Disposal Relief?
Business Asset Disposal Relief (BADR), renamed from Entrepreneurs' Relief in March 2020, allows business owners to pay Capital Gains Tax at a reduced rate of 10% instead of the standard 20% when disposing of qualifying business assets. The lifetime limit is £1 million of gains, down from £10 million before March 2020.
How it works
To qualify, you must have owned the business or shares for at least 2 years before the disposal. For shares, you must hold at least 5% of the shares and voting rights, and the company must be a trading company. For sole traders, the disposal must be of all or part of the business. The 10% rate applies to the first £1 million of qualifying gains across your lifetime. Any excess above £1 million is taxed at the standard CGT rate (20%).
Real example
Steve sells his business for £600,000. He bought it for £100,000 ten years ago and has never used BADR before. His gain is £500,000. Without BADR, he would pay 20% CGT on £497,000 (after the £3,000 exemption), totalling £99,400. With BADR, the rate drops to 10%, and his CGT bill is £49,700. He saves £49,700.
Who does this affect?
Business owners, company directors with 5%+ shareholding, and partners in trading partnerships. The £1 million lifetime limit means the relief is most valuable for small business owners rather than large-scale entrepreneurs. You claim BADR on your Self Assessment return in the tax year of the disposal.
HMRC source
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