Accountancy & Banking

Ian Harlock-Smith, Director - Personal Tax at Saffery, looks at Business Asset Disposal Relief

By Ian Harlock-Smith [email protected]

Published: March 4, 2024 | Updated: 5th March 2024

In this month’s Finance Matters, Ian​​​​ Harlock‑Smith, Director ‑ Personal Tax at Saffery looks at Business Asset Disposal Relief and we get to meet Corporate Tax Trainee Kieran Quinn and learn about his love of football and coffee!

Business Asset Disposal Relief (BADR), previously called Entrepreneurs’ Relief, is a capital gains tax (CGT) relief intended to incentivise individuals to grow and invest in their businesses.

BADR is available on a disposal of business assets, reducing the rate of CGT on qualifying gains from the maximum of 20% to only 10%.

The relief is subject to a £1 million lifetime limit on gains, with the current maximum potential tax saving under BADR therefore £100,000.

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 they work for. Trustees may also be eligible for BADR in certain circumstances.

An individual carrying on a trade (as a sole trader or in a partnership) may qualify for BADR when they dispose of their interest in the business. Relief may also be due for assets used in the business at the time of the disposal.

The asset being disposed of must have been owned by the taxpayer throughout the two-year period ending with the date of disposal. The disposal must represent either the whole of the business or a part of the business that is capable of being carried on in its own right.

Property businesses are not eligible for BADR, with the exception of those that qualify as furnished holiday lettings (FHL’s).

In certain circumstances (often for sole traders), there is a delay between the cessation of a business and the disposal of the assets used within the business, but this does not preclude BADR being available for these assets.

BADR is available to directors and employees selling shares/securities in the company (or group of companies) they work for.

The relief is restricted to trading companies and groups, so it is unlikely that shares in family investment companies will qualify for BADR.

For share disposals to qualify for BADR then throughout the two year period to the date of disposal; the shareholder must be an employee or director of the company (or group company), own at least 5% of the ordinary share capital and voting rights and either be beneficially entitled to at least 5% of the company’s distributable profits and 5% of the assets on a winding up available to equity holders, 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 a holding company of a “trading group” for BADR to be due. There is a BADR definition of “trading” for this purpose, which is broadly speaking, a company which is ‘carrying on trading activities whose activities do not include, to a substantial extent, activities other than trading activities’. Care is required where the company has any investment-related activities such as property businesses and investment portfolios.

There are relaxations for;

  • Individuals holding Enterprise Management Incentive (EMI) shares which can mean that exit-only EMI options, where the option is exercised and the EMI shares acquired just before a sale, can potentially qualify for BADR.
  • Individuals who may no longer qualify for BADR following certain share issues diluting their shareholding below 5%.
  • Companies that have ceased to trade within three years of the shares being sold.
  • Where an individual exchanges shares in one company for shares or securities in another company

The sale of an asset used in the business for at least two years and owned by the individual for at least three years prior to its disposal can also be eligible for BADR in certain circumstances but there may be restrictions to the relief available.

BADR must be claimed by the first anniversary of the 31 January following the tax year of disposal.

Where spouses or civil partners both have an interest in a company or asset where only one of them will qualify for BADR, there may be planning opportunities to maximise the available relief under BADR.

If you have any questions on BADR, please get in touch with Ian Harlock-Smith

E: [email protected]                   

***

Name: Kieran Quinn

Role: Corporate Tax Trainee

Time at Saffery: 18 months

What’s the best bit about your job?

I really enjoy the opportunity to work with different sized companies that operate in a range of sectors. The variety of clients and work that comes along with this keeps the job interesting and exciting, and I find it especially rewarding to get to the end of a big job where we’ve worked closely with the client, knowing that we’ve been able to achieve a good outcome as a result.

The culture of Saffery is really important to the business and the people within it – what do you think you bring to the team and what do you contribute?

I greatly enjoy working within a team and will always try to help and pick up extra work where I can. I also enjoy both learning new things and sharing what I’ve learnt with others, which I think helps contribute to the collaborative environment within the corporate tax team and the wider office.

If you weren’t doing this role, what might you be doing?

I love baking and making coffee, so perhaps one day I’ll open my own bakery/coffee shop. I have thought about whether I could run for a role within government or a local council, but ultimately decided I’m not brave enough for politics!

What do you enjoy doing outside of work?

I’m a big football fan and try to go to Southampton matches as often as I can. I’m also passionate about coffee, and enjoy trying new types of beans, making weird and wonderful coffee drinks (I once made a cappuccino infused with a Krispy Kreme doughnut). I tend to spend weekends café hopping and going to the gym, and in the last couple of years I’ve also gotten back into building Lego, which I find to be a great, relaxing pastime.

Tell us something about yourself that we don’t know

When I was 16, I worked for 6 weeks at an opera festival on an island off the west coast of France. I spent the days at rehearsals, building props and setting up stages, then helped with performances in the evening. It was a brilliant experience, despite not being a musical person and only being able to speak about 5 words of French!

Who or what inspires you?

Without a doubt it would have to be my mum. I find it so admirable to see how hard she works whilst still finding time for her family, and if even half of that work ethic and devotion is instilled into me, I will be very proud.

What’s your favourite place in Dorset?

There’re two places that come to mind. The first (and more boring option) is one of the Finca coffee shops in Dorchester, simply because I go there a lot to just get away from everything, spending a bit of time to just chill out and not worry about a thing. The other place is Swanage beach – I have a lot of family in Swanage, and spent a lot of time there growing up, particularly on the beach, playing in the summer or for a nice walk in the winter. I’ve a lot of happy memories there.

Give 3 words to describe yourself

Enthusiastic, approachable, passionate

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