Are you thinking of disposing of your business?
If you are considering a business disposal, it’s important to consider the timing and the increase in the rate of tax applicable to these types of transactions following Labour’s first budget, late in 2024.
The term ‘disposal’ can be misleading as it doesn’t always mean the asset is sold. Disposing of a business asset can also mean giving it away or swapping it for something. It might also mean that you’re disposing of part a business.
In many cases, when a business disposal occurs, it is possible to claim Business Asset Disposal Relief (BADR), which dramatically reduces the tax payable on the transaction.
What tax do I pay?
Business Asset Disposal Relief (BADR) applies to the sale of a business, shares in a trading company or an individual’s interest in a trading partnership. When the relief is available, Capital Gains Tax (CGT) of 10% has been payable in place of the standard rate of 24% for higher rate taxpayers. This can mean a substantial CGT saving for someone looking to exit from their business. But please note that the rate of tax will increase to 14% from 6 April 2025 and rise again to 18% from 6 April 2026, which narrows the gap.
This means that getting the timing right can save a lot of money.
There are a number of qualifying conditions that must be met in order to qualify for the relief.
If you’re selling all or part of your business
To qualify for relief, both of the following must apply for at least 2 years up to the date you sell your business:
- you’re a sole trader or business partner
- you’ve owned the business for at least 2 years
The same conditions apply if you’re closing your business instead. You must also dispose of your business assets within 3 years to qualify for relief.
If you’re selling shares or securities
To qualify, both of the following must apply for at least 2 years up to the date you sell your shares:
- you’re an employee or office holder of the company (or one in the same group)
- the company’s main activities are in trading (rather than non-trading activities like investment) – or it’s the holding company of a trading group.
You should contact us to check you are eligible if you are considering a disposal.
How much can I claim?
You can currently claim a total of £1 million in BADR over your lifetime. The £1m lifetime limit means you can qualify for the relief more than once. The lifetime limit may be higher if you sold assets before 11 March 2020.
How do I Claim?
Claims for BADR are made either through your self-assessment tax return or by filling in Section A of the Business Asset Disposal Relief helpsheet.
The deadline for claiming relief is 31st January, one year on from the end of the tax year in which the business disposal was made. For example, if you completed a business disposal on 15 May 2023, then the disposal took place in the 2023/24 tax year (6th April 2023 – 5th April 2024). You have until 31st January 2025 to claim BADR.