CH3 Business Asset Disposal Relief (BADR)

Question 1

BADR

What was BADR previously known as, and when was it prior to?

Answer 1

The relief was previously known as entrepreneurs’ relief prior to 2020/21.

Question 2

Claiming BADR

When is BADR available?

Answer 2

When there is a ‘material disposal’ of ‘business assets’, or
a disposal which is ‘associated’ with a material disposal.

Question 3

‘Material Disposals’ of ‘Business Assets’

BADR is most commonly available to?

Answer 3

Company directors/employees disposing of their shares (or securities) in their ‘personal trading company.’

Question 4

‘Material Disposals’ of ‘Business Assets’

What two conditions must be met in order to qualify for the relief?

Answer 4

The company is the taxpayer’s ‘personal trading company’; and
The taxpayer must work for the company.

These two conditions must be met two years prior to the disposal.

Question 5

‘Material disposals’ of ‘Business Assets’

What is a ‘personal trading company’?

Answer 5

Where the shareholder holds > 5% of the ordinary share capital.

Question 6

Claiming BADR

When must BADR be claimed?

Answer 6

On or before the first anniversary of 31st of January following the tax year of the qualifying disposal.

In most cases, the relief is claimed when filing a SA Tax Return for the year in which the gain is made (otherwise there is an overpayment of CGT)

Question 7

Operation of the Relief

What is the aim of BADR?

Answer 7

To reduce the rate of CGT paid by taxpayers on qualifying disposals to 10%.

Gains at 10% are deemed to utilise any unused BRB in priority to other gains

Question 8

Operation of the Relief

BADR can only be claimed in respect to a ‘lifetime limit’, what is it?

Answer 8

£1 million.

Gains in excess of the lifetime limit are taxed at normal CGT rates.

For disposals prior to 11 March 2020 the limit was £10 million.

Question 9

‘Associated’ Disposals

Give an example where a disposal will be classed as an ‘associated disposal’

Answer 9

If a company director were to sell shares in a company (>5%), as well as the premises from which the company trades in at or around the same time.

Question 10

Company ceases as a personal trading company

What election can be made when a shareholder’s shares become diluted (<5%)?

Answer 10

An election can be made for a deemed disposal and reacquisition of the shares immediately before dilution at market value prior to new shares being issued.

(As if the entire share capital of the company had been disposed of).

This value becomes the base cost of the shares to c/fwd.