View the related Tax Guidance about Entrepreneurs' relief
Business asset disposal relief for sole traders
Business asset disposal relief for sole tradersThis guidance note discusses the application of business asset disposal relief (BADR) for sole traders only. Business asset disposal relief (BADR) is a capital gains tax (CGT) relief that allows business owners with chargeable gains on qualifying business assets to pay CGT at a rate of 10%. The relief is available on up to £1m of capital gains for each individual over their lifetime.The rate of BADR will increase to 14% for disposals made on or after 6 April 2025, and from 14% to 18% for disposals made on or after 6 April 2026. There are anti-forestalling rules which will apply due to the changes in general CGT rates from 30 October 2024 and the phased changes in BADR rates from 6 April 2025. For details, see the Conditions for business asset disposal relief guidance note.See also the following guidance notes:•Conditions for business asset disposal relief•Business asset disposal relief for partnerships•Business asset disposal relief on shares and securities•Maximising business asset disposal reliefFor further detail, see Simon’s Taxes C3.1302C–C3.1303A.OverviewTo be eligible for business asset disposal relief, a disposal must be:•a material disposal of business assets•an ‘associated disposal’ where an asset is disposed of which is associated with a relevant material disposal’ eg where an asset is owned personally but used for the purpose of the business carried on by a company or partnership•a disposal of trust business assets, see the Business asset disposal relief (entrepreneurs’ relief) ―
Business asset disposal relief (entrepreneurs’ relief) ― trusts
Business asset disposal relief (entrepreneurs’ relief) ― trustsEntrepreneurs’ relief (now called ‘business asset disposal relief’) is a relief that reduces the rate of capital gains tax payable by business-owners on a disposal of their business. Trustees are able to claim the relief on the disposal of business assets held by them in the same manner that individuals can.The relief was introduced on 6 April 2008 as ‘entrepreneurs’ relief’ and it retained that name until 6 April 2020. The structure of the relief has remained substantially the same throughout the period, although there have been changes to qualifying conditions and the lifetime limit, which are mentioned in this guidance note. The relief is now referred to throughout as ‘business asset disposal relief’. Gains that qualify for business asset disposal relief are subject to capital gains tax at the rate of 10% for disposals before to 5 April 2025, 14% for disposals from 6 April 2025 to 5 April 2026 and 18% for disposals made thereafter. See the Policy paper Capital Gains Tax ― rates of tax. Anti-forestalling rules apply to fix the date of disposal.Other trust gains are subject to CGT at the following rates:•20% for normal gains and 28% on residential property gains to 5 April 2024•20% for normal gains and 24% on residential property gains between 6 April 2024 and 29 October 2024•24% for normal gains and 24% on residential property gains from 30 October 2024The preferential rate of tax means that the relief could
Business asset disposal relief for partnerships
Business asset disposal relief for partnershipsThis guidance note discusses the application of business asset disposal relief (BADR) for partners only. BADR is a capital gains tax relief which reduces the rate of tax on qualifying gains to 10%.The rate of BADR will increase to 14% for disposals made on or after 6 April 2025, and from 14% to 18% for disposals made on or after 6 April 2026. There are anti-forestalling rules which will apply due to the changes in general CGT rates from 30 October 2024 and the phased changes in BADR rates from 6 April 2025. For details see the Conditions for business asset disposal relief guidance note.BADR relief is available for individuals whether they operate as a sole trader, in partnership or through their personal company. Companies cannot claim BADR. There is a lifetime limit on BADR of £1m of total capital gains.The rules for sole traders are the same as those for partners and there is more detail in the Conditions for business asset disposal relief guidance note. The commentary below sets out how these rules apply to partners in partnerships.For further guidance on BADR and partnerships, see Simon’s Taxes C3.1302C–C3.1303A and HMRC guidance in CG63950P onwards.Overview of business asset disposal relief for partnershipsTo be eligible for BADR, a disposal must be one of the three main categories as follows:•a material disposal of business assets which applies when the business or part of the business is sold with modifications when the business has stopped
Conditions for business asset disposal relief
Conditions for business asset disposal reliefBusiness asset disposal relief (BADR) is a capital gains tax (CGT) relief that allows business owners with chargeable gains on qualifying business assets to pay CGT at a rate of 10%. The relief is available on up to £1m of capital gains for each individual over their lifetime. The lifetime limit has reduced several times and the previous limits are detailed further below.At the Autumn Budget 2024 it was announced that the rate of BADR will increase to 14% for disposals made on or after 6 April 2025, and from 14% to 18% for disposals made on or after 6 April 2026, see more details below including anti-forestalling rules which apply from 30 October 2024. Relief is available on gains arising to sole traders, partners, shareholders and trusts; it is not available for companies. The relief also applies to gifts and non-arm’s-length sales.This guidance note sets out the main qualifying conditions for BADR, how the relief is calculated and claimed, and details on associated disposals.HMRC guidance is set out at CG63950P and the relevant legislation can be found in TCGA 1992, ss 169H–169SH.Disposals qualifying for business asset disposal reliefBADR applies to qualifying business disposals which fall into three main categories:•material disposal of business assets ― this is the main type of disposal which will attract BADR. It applies to individuals who trade through a company, as a sole trader or in a partnership. Relief will be available if part or the whole of
Business asset disposal relief (previously known as entrepreneurs’ relief)
Business asset disposal relief (previously known as entrepreneurs’ relief)Business asset disposal relief (which may also be referred to as BADR) is a capital gains tax (CGT) relief available to taxpayers who make a qualifying business disposal (essentially selling or giving away their business). Gains qualifying for business asset disposal relief are taxed at a flat rate. Relief is available on up to £1m of capital gains for each individual over their lifetime. For disposals between 23 June 2010 and 5 April 2025, qualifying gains are taxed at a flat rate of 10%. Disposals made between 6 April 2025 and 5 April 2026 are taxed at 14% and disposals made on or after 6 April 2026 are taxed at 18%. These rate changes are subject to anti-forestalling provisions. See ‘Rate of CGT on qualifying gains’ below. Prior to 6 April 2020, business asset disposal relief was known as entrepreneurs’ relief. Strictly, any reference to the relief before 6 April 2020 in the commentary below should use the term entrepreneurs’ relief, however to avoid confusion, the term business asset disposal relief has been used throughout. Business asset disposal relief is a key relief in many business scenarios. To read about it in the context of some common types of transactions, see the following guidance notes:•Rollover relief•Business asset gift relief ― restrictions•Capital gains tax implications of incorporation•Tax implications of share sale•Tax implications of trade and asset sale•Takeovers•Loan notes and Qualifying Corporate Bonds (QCBs) and non-QCBs
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