BADR is available on the disposal of business assets and provides the shareholders of qualifying company’s a CGT rate of 10% for the first £1 million of gains (profits) arising during their lifetime. Providing the necessary conditions are met, you are entitled to claim relief for gains made on multiple occasions up to a cumulative total of £1 million. Once the gain exceeds the £1 million lifetime limit, CGT will be payable at current standard rate of CGT which is a maximum of 20%.

BADR should be claimed on the CGT pages of an individuals self assessment tax return. The deadline for this will be 31 January following the end of the tax year the sale took place.

How do I qualify for BADR?

BADR is available to individuals who are selling their share in a company or their interest in a partnership as well as Directors and employees selling shares in a company or in a group of companies they work for.

To qualify for BADR, the sale must be a material disposal of a business asset or a disposal which is associated with a material disposal. This means the sale must be for the whole or part of a trade or partnership, the sale of an asset used in a business at the time the business ceases to trade or shares or securities (for example loan stock) in a company.

In addition to this, following conditions must apply;

• The individual must be an employee or Director of the company or of a company in the same group. There are no minimum hours required in terms of the time spent carrying out duties for the company. With this in mind, BADR is available to part time employees along with full time employees.
• The business asset must have been owned by the individual for at least two years before the sale and the asset must be sold within three years following the businesses cessation.
• The sale must represent either the whole of the business or, if only part of the business is disposed of, the part sold must represent a business that is capable of continuing to trade in its own right.
• The company in which the shares or securities are held must be the individuals personal company. In order to met this condition, they must hold at least 5% of both the ordinary share capital and voting rights of the company and either,
  • Be beneficially entitled to at least 5% of the company’s distributable profits and 5% of the assets following the winding up of a company or
  • Be entitled to at least 5% of the proceeds on the sale of the company’s entire ordinary share capital

• The company must be a trading company or holding company of a trading group
  • A Trading Company is defined as one which is ‘carrying on trading activities whose activities do not include to a substantial extent, activities other than trading activities’. HMRC consider a ‘substantial extent’ to mean ‘more than 20%’. In order to ensure a company does not get caught by the 20% rule, various criteria should be considered (turnover, assets and expenditure for example) however it will depend on the circumstances of each case.
  • Activities other than trading activities typically include investment related activities such as a property business or investment portfolios. Individuals who have sold assets in companies that carry out non trading activities will not qualify for BADR.

Planning Points

Every individual has their own £1 million BADR lifetime allowance and transfers of shares between spouses and civil partners are exempt for CGT purposes. Therefore spouse or civil partners that both have in interest in a company provides an opportunity to ensure maximum BADR relief is utilised.

For help and advice please speak to your usual TWP contact.