Business Asset Disposal Relief (BADR), formerly known as Entrepreneurs’ Relief, is a valuable tax relief for business owners in the UK. It allows individuals to pay a reduced rate of Capital Gains Tax (CGT) on the sale of qualifying business assets. With upcoming changes to the tax rates, it is crucial to understand the benefits of utilising BADR, where possible, before 6 April 2025.
Understanding BADR
BADR was designed to encourage entrepreneurship by providing a lower CGT rate on the disposal of business assets. For the 2024/25 tax year, capital gains eligible for BADR are taxed at 10%, significantly lower than the standard CGT rates (currently 18%/28%). This relief applies to the sale of all or part of a business, shares in a personal trading company, or shares in a trading group.
To qualify for BADR, certain conditions must be met:
- The business must have been owned for at least two years prior to the sale.
- For shares, the individual must hold at least 5% of the ordinary share capital and voting rights in the company.
- The company must be a trading company or the holding company of a trading group.
The relief is available to individuals disposing of their personal businesses or interests in a partnership, as well as directors and employees selling shares in the company (or group of companies) they work for.
Why Act Before 6 April 2025?
The tax landscape is set to change after 6 April 2025. The current 10% rate for BADR will increase to 14%, and from 6 April 2026, it will rise further to 18%. This means that disposing of qualifying business assets before 6 April 2025, can result in significant tax savings.
However, there are also legal aspects to consider; Corporate and Commercial legal expert, Peter Raybould from Willans Solicitors explores these, raising the question; is there still time to sell my business?
“In order to secure the anticipated tax savings on CGT, any transaction will need to complete in advance of 5 April 2025.” He reinforces.
“The pending increase in BADR means that anyone considering selling their business will need to identify and agree headline terms with a purchaser before embarking on the transaction process, which will mean satisfactorily completing due diligence, negotiating, and agreeing the transaction contract, dealing with disclosure, and taking into account any financial requirements of the Buyer, such as raising the necessary debt finance. It is an understatement to say therefore that time is at a premium and any decision to be taken as to whether or not one should sell needs to be done now.” He warns.
“Completion of a business or share sale between now and 5 April is achievable provided you have advisers who are capable of delivering transactions on time and on protecting your interests in the face of the harshest time pressure. However, the longer you leave your decision the more compromises you will likely have to make to achieve completion of the deal in the desired timeframe. It is therefore always best to speak to an expert to ensure you put the right measures in place to complete proceeding in a timely manner. At Willans we have legal experts that are well versed in this area so get in touch now to learn more about how we can help.”
Looking at the figures
The maximum potential savings are portrayed below:
| Disposal Date | CGT Rate on Assets Qualifying for BADR | Standard CGT Rate for Higher and Additional Rate Taxpayers | Maximum Potential Tax Saving |
| 6 Apr 2024 – 29 Oct 2024 | 10% | 20% (24% on residential property) | £100,000 |
| 30 Oct 2024 – 5 Apr 2025 | 10% | 24% | £140,000 |
| 6 Apr 2025 – 5 Apr 2026 | 14% | 24% | £100,000 |
| 6 Apr 2026 onwards | 18% | 24% | £60,000 |
A business owner planning to sell their business for £1 million. Under the current BADR rate of 10%, the CGT payable would be £100,000. If the sale is delayed until after 6 April 2025, the CGT rate increases to 14%, resulting in a tax liability of £140,000. By acting before the deadline, the business owner saves £40,000 in capital gains tax. If an owner did plan to exit after 6 April 2026 accelerating their plans could result in a potential tax saving of up to £80,000.
Lifetime Limit
BADR has a lifetime limit of £1 million, meaning the reduced CGT rate applies to gains up to this amount. Spouses and civil partners each have their own lifetime limit, potentially doubling the relief available to a married couple.
Retirement
For company owners considering retirement but with no prospect of a sale on the horizon a Members’ Voluntary Liquidation (MVL) could allow the company’s shareholders to utilise the benefits of BADR. MVL is a process used to close a solvent company in a tax-efficient manner. During an MVL, the company’s assets are distributed to shareholders as capital rather than income. Any capital distribution is subject to the same rates and reliefs as a share disposal meaning, where appropriate, BADR could reduce the tax on any monies received. As such any business owners looking at retirement in the short term many wish to consider the virtues of accelerating their plans to maximise their post-tax income.
Business Asset Disposal Relief offers significant tax benefits for business owners looking to sell their assets. For company owners considering retirement, combining Business Asset BADR with a MVL offers a powerful strategy to maximise retirement funds. By acting quickly, individuals can take advantage of the current 10% CGT rate, resulting in substantial tax savings.
Next steps
If you are considering selling your business or shares, or thinking of winding down and retiring, it is always best to seek professional expert advice. Get in touch with one of the specialists below to talk through your options. Don’t leave it too late, now is the time to act.
