Is Business Asset Disposal Relief available to non-UK residents?
Business Asset Disposal Relief (BADR) offers a reduced Capital Gains Tax rate when selling or disposing of all or part of your business, including company shares. Both UK and non-UK residents can claim this relief, provided the business disposals meet the necessary eligibility conditions. In this article, we’ll cover the fundamentals of BADR, such as who qualifies, the types of assets eligible for this relief, and the steps to calculate gains and file a claim as an individual.
What is Business Asset Disposal Relief?
Business Asset Disposal Relief (formerly known as Entrepreneurs’ Relief) provides tax relief on certain business asset disposals. If eligible, you pay a reduced Capital Gains Tax (CGT) rate of 10% instead of the standard 20%.
This relief applies when you sell, gift, transfer, exchange, or receive compensation for qualifying business assets. The relief offers significant tax savings when disposing of assets such as shares or entire business stakes, provided that the assets and circumstances meet the qualifying conditions for BADR.
Business Asset Disposal Relief (BADR) offers individuals a lifetime limit of £1 million on eligible gains, meaning only this amount can benefit from the reduced 10% Capital Gains Tax rate. Any gains above this limit will be taxed at the standard CGT rate of 20%, or 18%-24% for residential properties.
This relief is available to UK-resident and non-resident individuals who are sole traders, business partners, shareholders in personal companies, employees or office holders with shares, and trustees of settlements. It is not available to corporate bodies such as companies or non-owner shareholders.
Types of assets eligible for relief
Subject to certain eligibility criteria, you can claim Business Asset Disposal Relief (BADR) on the disposal of assets (or interests in those assets) that fall into the following categories:
- Assets used in the business: This applies to assets you are disposing of in part or as a whole, whether you operated the business on your own or in partnership. It includes goodwill (in some circumstances) and business premises.
- Assets in use for your business: This covers assets that were used in your own business or in a partnership where you were a member, and were disposed of within three years after the business ceased. This category excludes shares, securities, and any other business assets held as investments.
- Shares or securities: This includes one or more assets consisting of shares in, or securities of, your ‘personal company.’
- Personally owned assets: This covers assets you owned personally but used in a business operated by either a partnership of which you are a member or your personal trading company.
A ‘business’ includes any trade, profession, or vocation. However, it does not include the letting of property, except for furnished holiday lettings in the UK or European Economic Area (EEA).
Eligibility requirements for BADR
To claim Business Asset Disposal Relief, you must meet specific qualifying conditions. These conditions vary depending on the type of disposal you are making, as outlined below:
When disposing of all or part of your business
- You are a sole trader or business partner.
- You have owned the business for at least two years.
These conditions also apply if you are closing your business instead of selling it. To qualify for the relief, you must dispose of your business assets within three years of the date your business ceases.
If you sell all or part of your business to a close company where you and any ‘relevant connected person’ hold at least 5% of the ordinary shares, any gain on goodwill included in the sale will not qualify for BADR. A ‘relevant connected person’ refers to any company or trustee you are associated with.
However, the rule on goodwill does not apply if you sell your shares in the close company within 28 days of selling your business to a company in which you (and any relevant connected person) own less than 5% of the ordinary shares.
When disposing of shares or securities
If you are a non-UK resident for tax purposes, you are generally not liable for Capital Gains Tax on profits made from disposing of shares in a UK company. However, if you return to the UK within five years of leaving, you may become liable for this tax.
If any such disposals are subject to Capital Gains Tax (CGT), you qualify for BADR if you meet both of the following conditions for at least two years before the date you sell your shares:
- You are an employee or office holder (e.g., director or company secretary) of the company or of one of the companies within the same trading group.
- The company is either a trading company (as opposed to, for example, an investment firm) or the holding company of a trading group.
Under section 165A of the Taxation of Chargeable Gains Act 1992, a ‘trading company’ is defined as one that conducts trading activities and does not engage in non-trading activities to a significant degree.
However, if the company ceases to be a trading company or a member of a trading group, you may still qualify for BADR if you sell your shares within three years.
Additional rules apply if the shares come from an Enterprise Management Incentive (EMI).
Disposal of shares from an EMI
When disposing of shares acquired under an Enterprise Management Incentive scheme, you must have:
- purchased the shares after 5 April 2013, and
- been given the option to purchase the shares at least two years before disposing of them
Disposal of shares not from an EMI
.To qualify for Business Asset Disposal Relief (BADR) when your shares are not from an Enterprise Management Incentive (EMI), the business must have been your ‘personal company’ for at least two years before you sell the shares. This means you must hold at least 5% of both the company’s ordinary shares and voting rights.
Additionally, you must be entitled to at least 5% of either:
- the profits available for distribution, and 5% of the company’s distributable assets upon winding up, or
- the disposal proceeds if the company is sold.
If your shareholding falls below 5% because the company issues new shares, you may still be eligible for BADR. In this case, you can elect to be treated as if you had sold and repurchased your shares immediately before the new shares were issued, creating a gain on which you can claim BADR. You also have the option to defer paying tax on the gain by making another election, allowing you to pay the tax when you eventually dispose of the shares.
To proceed, complete the additional information section of the Capital Gains Tax summary pages in your Self Assessment tax return. Alternatively, if you don’t have to file a tax return for the year, you can write to HMRC’s Capital Gains Tax department instead.
When disposing of assets you lent to your business
This is known as an ‘associated disposal.’ To qualify for Business Asset Disposal Relief (BADR), you must meet both of the following conditions:
- You must sell at least 5% of your interest in a business partnership or your shares in a personal company.
- You must own the assets and allow your business partnership or personal company to use them for at least one year leading up to the sale of your business or shares, or until the business ceases.
The disposal will not qualify for relief unless it is directly associated with the sale of your interest in the partnership or your shares in the company. Additionally, you may face restrictions if the asset was not used solely for business purposes or if the company reimbursed you for its use.
How to claim Business Asset Disposal Relief
You can claim Business Asset Disposal Relief (BADR) by completing the Capital Gains Tax summary pages (form SA108) in your Self Assessment tax return. Be sure to include calculations of the capital gain on which you’re claiming relief, along with any relevant estimates or valuations of the assets, and the amount of tax relief due.
Alternatively, you can claim BADR by completing Section A of the Business Asset Disposal Relief helpsheet. You will need to provide the following information on the form:
- Your name and address
- Unique taxpayer reference (UTR)
- Total of all previous chargeable gains (net of allowable losses) on which you have claimed BADR
- Description of the asset or assets
- Names and addresses of any income beneficiaries with an interest in the disposed assets
- Date of disposal
- Each qualifying beneficiary’s income entitlement (as a percentage) of the disposed assets
Additionally, attach your computations of the capital gain and the amount of tax relief due.
There’s no limit to the number of times you can claim BADR, but the lifetime limit for relief is £1 million. You may be able to claim more if you disposed of assets before March 11, 2020. To check this, you can contact HMRC’s Capital Gains Tax department.
Deadline for Claiming BADR
The deadline for claiming Business Asset Disposal Relief depends on the tax year in which you sold or closed your business:
- Disposals made in the 2025-2026 tax year – claim by 31 January 2028
- Disposals made in the 2024-2025 tax year – claim by 31 January 2027
- Disposals made in the 2023-2024 tax year – claim by 31 January 2026
For example, if you sell a qualifying asset on any date between 6 April 2025 and 5 April 2026, you must make a claim for BADR no later than 31 January 2028.
Working out your gains and tax
Before claiming Business Asset Disposal Relief (BADR), you need to work out your capital gains and tax liability. The method for this depends on whether all of your gains qualify for relief.
For simple calculations of capital gains or losses on the sale of land, other assets, or whole holdings of shares, HMRC’s Capital Gains Tax summary notes include a worksheet you can use.
If all your gains qualify for BADR, follow these steps:
- Work out the gain for all qualifying assets.
- Add up the gains and subtract any qualifying Capital Gains Tax (CGT) losses to work out your total taxable gain eligible for BADR.
- Deduct your capital gains tax-free allowance
- You will pay 10% Capital Gains Tax on the remaining amount.
If you have other gains that do not qualify for BADR, the CGT rate for those gains will depend on your Income Tax band. You’ll need to work out the tax on these gains separately, based on your overall income.
Higher-rate and additional-rate taxpayers
If you pay Income Tax at the higher or additional rate, any gains you make from the disposal of chargeable assets will be subject to higher Capital Gains Tax rates.
For gains that do not qualify for Business Asset Disposal Relief, the following CGT rates will apply to disposals made on or after 6 April 2024:
- 24% on gains from residential property
- 20% on gains from other chargeable assets
You can apply your tax-free allowance against the gains that would be subject to the highest CGT rates, such as those taxable at 24%.
For disposals made on or before 5 April 2024, the rates are different: you’ll pay 28% on gains from residential property and 20% on gains from other chargeable assets.
Basic-Rate Taxpayers
If you pay Income Tax at the basic rate, you’ll need to determine the CGT rate for gains that are not eligible for BADR. Here’s how:
- Work Out Your Total Taxable Income: Determine your total taxable income from all sources for the year, after deducting your tax-free Personal Allowance (£12,570 for the 2024-25 tax year) and any other applicable Income Tax reliefs.
- Determine the Remaining Basic-Rate Allowance: Subtract your taxable income from the basic-rate income threshold (£37,700 for the 2024-2025 tax year). The amount remaining is the portion of your income still taxable at the basic rate, which you can apply to your gains.
- Work Out Your Total Taxable Gain: Work out the total taxable gain from all disposals.
- Apply the Basic Rate to BADR-Eligible Gains: Use the remaining basic-rate allowance against any gains eligible for BADR. You’ll pay 10% CGT on these gains.
- Apply the Basic Rate to Other Gains: Apply any remaining basic-rate allowance to your other gains. You’ll pay 18% CGT on gains from residential property and 10% on gains from other chargeable assets.
If your gains exceed the basic-rate income threshold, you will pay 24% on gains from residential property (or 28% if the disposal occurred on or before 5 April 2024) and 20% on gains from all other chargeable assets. You can also apply your capital gains tax-free allowance to the gains that are subject to the highest CGT rates.
Do you have any other questions?
Business Asset Disposal Relief can offer substantial savings on Capital Gains Tax if you choose to sell all or part of your business, including shares and business premises. This relief is also available to non-UK residents, provided that the disposals meet the necessary qualifying conditions.
While claiming this relief is generally straightforward, the process of disposing of assets and navigating HMRC’s rules can be complex, especially if you’re living outside the UK.
For general inquiries, you can contact HMRC, but we strongly recommend seeking professional advice from an accountant or tax expert like Startxpress before making any disposals.
We also suggest reviewing HMRC’s official guidance on Business Asset Disposal Relief.
For more detailed guidance, visit the Startxpress Help Center and Blog. If you need assistance, feel free to reach out to us at support@startxpress.io!
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