Over the years, a number of different reliefs have been introduced and subsequently replaced, with the intention of providing a lower taxation rate to an entrepreneur selling their business. It was felt unfair that someone who had built up a business over a number of years should be subject to the same taxation rates as an individual selling an asset they had acquired as an investment.

In recent years the subsequent reliefs have included Retirement Relief, Entrepreneurs Relief and currently Business Asset Disposal Relief (BADR), each with their own qualifying conditions.

The limit available for relief has been reduced from £10m to a lifetime limit of £1m for BADR. The qualifying conditions which need to be met for the relief have also been increased.

There is much criticism of the success of the reliefs and that they have failed to create an entrepreneurial environment as intended.  The new, lower threshold results in the relief now being more suitable for a one off sale rather than for a repeat entrepreneur to build and sell a number of businesses.

Because of the perceived failings in the relief there has been much speculation that the relief will ultimately be scrapped.

Business Asset Disposal Relief (BADR)

The following qualifying conditions must be met for the disposal of share capital. Different rules apply to shares acquired through EMI options.

Subject to meeting separate qualifying conditions, relief is also available for the disposal of an interest in a sole trade or partnership.

The availability of the relief provides a 10% Capital Gains Tax rate on the gain.

Qualifying Conditions for BADR – Shareholdings

The conditions must be met over a two year period, normally to the date of disposal of the shares (or the cessation of trade subject to meeting further conditions).

  1. The company is the individual’s personal company. To qualify:
  • The individual holds at least 5% of the ordinary share capital which gives them at least 5% of the voting rights.
  • The holding entitles the individual to at least 5% of the profits available for distribution or of the company’s assets on a winding up – or –
  • The individual would be entitled to at least 5% of the proceeds of a disposal of the whole of the ordinary shares capital of the company.
  1. The individual making the disposal was an officer or employee of the company or a company in the group. There is no minimum working time requirements or remuneration levels.
  2. The company was a trading company or the holding company of the trading group. HMRC will normally consider a number of factors in their assessment including:
  • The turnover split
  • The asset values
  • The expenditure and time spent of employees.

HMRC previously noted that they consider a company with over 20% non-trading activities will prevent the qualifying condition from being met.


To ensure a company qualifies, we recommend:

  • Monitoring changes to activities and any non-trading activities.
  • Seeking to ensure the 20% limit is not breached.
  • Recording relevant decisions with the use of Minutes.

If you would like to discuss any issues contained in this article, please get in touch.

The views expressed in this article are the personal views of the Author and other professionals may express different views. They may not be the views of Lambert Chapman LLP. The material in the article cannot and should not be considered as exhaustive. Professional advice should be sought in connection with any of the issues contained in the article and the implementation of any actions.

Lambert Chapman Chartered Accountants

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