Business Asset Disposal Relief | Tax Disputes
We are regularly instructed by corporate and individual taxpayers in disputes with HMRC in relation to a wide variety of taxes and duties. One such area in which disputes can arise is in relation to the correct application of Business Asset Disposal Relief (‘BADR’).
BADR provides a tax relief opportunity when you sell or dispose of all or part of your business. Individuals who own their business or have shares in a company may be able to use BADR to reduce the amount of liability to Capital Gains Tax (‘CGT’) in qualifying circumstances.
Formerly known as ‘Entrepreneurs Relief,’ BADR was introduced following a name change under Section 23 of the Finance Act 2020. The renaming does not affect any previous gains for which Entrepreneurs Relief was claimed.
A Material Disposal (sell or dispose) may cover:
- all or part of a trade by a sole trader or a partnership,
- shares or securities, such as loan stock.
- business assets in use at date of closure,
- assets held in trust,
- gifting a business or shares,
- swapping of assets,
- the receipt of insurance compensation for damaged or stolen assets.
Tim Thompson of KANGS outlines the nature and operation of BADR
Taxation benefit of BADR
BADR allows the opportunity for a lower CGT rate to be applied on gains made on qualifying disposals thereby providing a significant reduction for higher-rate taxpayers. Chargeable gains covered by BADR are taxed at a rate of 10%.
The amount of BADR allowed depends on the amount of the individual's BADR lifetime limit after taking previous disposals into account at the date of the disposal.
There is no limit upon the number of times BADR may be claimed but the maximum lifetime financial amount for each claimant is £1 million for disposals after 11 March 2020.
Previous disposals before this date dictate the lifetime limit as follows:
- £10 million from 6 April 2011 to 10 March 2020.
- £5 million from 23 June 2010 to 5 April 2011.
- £2 million from 6 April 2010 to 22 June 2010.
- £1 million for 2008-09 and 2009-10.
Should gains exceed the lifetime limit, they will be charged at the CGT rate applicable for that period.
Eligibility for BADR
To qualify for relief:
Upon sale of all or part of a business, an individual must:
- be a sole trader or business partner; and
- have owned the business for at least two 2 years.
Upon closure of a business:
- in addition to the aforementioned requirements,
- the business assets must also be disposed of within three 3 years.
Upon sale of shares or securities:
For at least two years prior to the date of sale:
- an individual must be an employee or office holder of the company, or one in the same group,
- the company’s main activities must involve trading or it is the holding company of a trading group.
- additional criteria may have to be met, depending on whether or not the shares are from an Enterprise Management Incentive.
How to claim BADR
BADR can be claimed:
- through a Self-Assessment tax return; or
- by submitting Section A of the Business Asset Disposal Relief help sheet.
How We Can Assist
HMRC often launches campaigns when targeting specific tax issues, such as their recent series of 'Let Property Campaigns.'
HMRC also issue 'nudge letters,' which we covered in a previous article. In that article, we explained their purpose and how they are designed to encourage both individual and corporate taxpayers to review their tax returns and ensure that all financial gains have been properly reported to HMRC.
HMRC recently issued nudge letters to individuals who have made a claim for BADR in 2022-23, where it believes the individual has:
- already exceeded the £1 million lifetime limit,
- exceeded the lifetime limit due to their 2022-23 claim taking them over £1 million.
It is essential that anyone receiving a nudge letter immediately checks their tax return and amends it within thirty days of receipt of the letter if an error is identified. Should an amendment not be required, it is prudent to inform HMRC within the same period.
If no action is taken in response to HMRC's letter, it may seek to amend the submitted return or open an enquiry. which may lead to financial penalties being imposed.
The Team at KANGS provides enormous experience gained from assisting clients facing HMRC investigations of every nature and would be pleased to guide and advise you:
- in respect of all obligations arising from the receipt of a nudge letter,
- on how to comply with any disclosure obligations to HMRC,
- and liaise with HMRC on your behalf.
If we can be of assistance, please reach out to us using the contact details below:
Tel: 0333 370 4333
Email: info@kangssolicitors.co.uk
We provide initial no obligation discussion at our three offices in London, Birmingham, and Manchester. Alternatively, discussions can be held through live conferencing or telephone.
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