BUSINESS ASSET DISPOSAL RELIEF – POTENTIAL CHANGES POST-ELECTION

What is Business Asset Disposal Relief?

Business Asset Disposal Relief (BADR), known before 2020 as Entrepreneurs’ Relief, is a tax relief that reduces the capital gains tax (CGT) on the disposal of qualifying business assets from 20% down to 10%. The relief is capped at a lifetime limit of £1 million of gains.

Qualifying criteria for BADR

To qualify for BADR, various conditions must be met for at least two years up to the date of sale:

• The company must be a trading company or a holding company of a trading company; and
• The selling shareholder must:

• • be an employee or officer of the company;
  • have at least a 5% shareholding in the company;
  • be entitled to exercise at least 5% of the votes in the company due to the shareholding; and
  • be beneficially entitled to at least 5% of the economic rights in the company.

Usage and impact of BADR

Business owners extensively use the relief. According to the Government’s Non-structural Tax Relief Statistics (updated May 2024), the estimated cost of the relief for 2023-24 was £1.5 billion to benefit 47,000 claimants.

Post-election changes

None of the three main political parties have announced they will abolish BADR. The Conservative Party has said they will retain BADR, but there are significant rumours that Labour will remove the relief or reform its application. As there is limited evidence that BADR encourages entrepreneurship, it is easy to see why it might be an attractive target.

Actions for business owners

1. Review and plan: Business owners should review their exit strategies in light of their eligibility for BADR and the risk of changes. If you are considering selling your business or shares, understand the timing and the structure of the sale to maximise your tax relief. It is unlikely there will be a Budget until the Autumn, so there might be the opportunity to accelerate a sale.
2. Stay informed: Keep up with political developments and tax policy announcements that could affect BADR.
3. Seek professional advice: Take tax advice if you are contemplating a sale, to ensure you meet the qualifying criteria for BADR and you are ready for any changes.

Further information on BADR is available at: https://www.gov.uk/business-asset-disposal-relief.

If you are contemplating the sale of your business, or have any queries regarding this article, please feel free to contact James Hutchinson at j.hutchinson@beale-law.com or on +44 (0) 20 7469 0408.