Businesses can make big tax savings when disposing of assets

With business costs rising as inflation soars, we want to remind companies about the tax incentives that can save businesses thousands of pounds.

For example, the Business Asset Disposal Relief (BADR), formerly known as Entrepreneurs Relief, is a type of tax relief which reduces the amount of Capital Gains Tax (CGT).

BADR is only available to individuals operating a business and disposing of a business asset. This disposal may be the sale of an entire business or the sale of shares.

However, it does not apply to disposals by companies or to the disposal of investment or non-business assets.

The areas where BADR applies include the following:

• A partnership
• A sole trader
• Personal company
• Joint ventures
• Business assets held by a trust

One area where BADR can be beneficial is with the furnished holiday let (FHL) market, which attracts the relief not available to landlords of residential lets.

If a business qualifies, CGT will be charged at a rate of 10 per cent instead of 18 per cent for a basic taxpayer, or 28 per cent for a higher taxpayer. This is on gains up to the lifetime limit applying at the time of disposal. Otherwise, if the limit, which currently stands at £1 million, is exceeded, the full CGT will apply.

Individuals can claim BADR on multiple occasions up to the threshold.

Disposals made before 22 June 2010 are subject to different rules.

If you’re selling all or part of your business

To qualify for relief, you must be the sole trader or business partner and have owned the business for at least two years.

The same conditions apply if you’re closing your business instead. You must also dispose of your business assets within three years to qualify for relief.

There are also other rules, depending on whether the shares are from an Enterprise Management Incentive (EMI).

Furnished holiday lets attract relief

Certain areas like furnished holiday lets (FHL) can benefit from BADR, attracting a rate of 10 per cent, compared to up to 28 per cent for a normal residential property like a Buy to Let.

The letting of these types of properties is seen as a commercial business and therefore falls within the scope of the relief.

However, if the owner has more than one property and sells just one, that sale may not qualify for BADR and the lower rate of capital gains tax,

It can be complicated, so request advice to ensure you meet the criteria.

For help and guidance on BADR and other taxation matters, contact our expert team.