Business Asset Disposal Relief (BADR) is a discounted rate for Capital Gains Tax (CGT).
This can significantly reduce your tax bill if you sell or wind up your company.
To qualify for BADR you must meet certain criteria, including owning the shares for at least two years.
How do I qualify for Business Asset Disposal Relief (BADR)?
Business Asset Disposal Relief (BADR), formerly Entrepreneur’s Relief (ER), is a special discounted rate for Capital Gains Tax (CGT). The special BADR rate is 10%, which is half the usual CGT rate of 20%.
To qualify for BADR you must have been an employee or officer of the company for two years, and you must have held the shares for two years.
You must also be an officer of the company at the time when you sell the shares. If you resign, even the day before you sell or wind up the company, you will lose all entitlement to the BADR special rate.
This can be tricky when selling the company, as many buyers require that the directors resign before confirming the purchase.
If you’re selling and the new buyers won’t let you stay on as director, then you could ask them to give you a role as an employee, as the condition for employment is still valid if the work is unpaid. You will need a valid contract of employment.
If your spouse is not an employee or officer for two years before the shares are sold, then they will not qualify.
It doesn’t matter if they were put on just before the sale, as they haven’t held the shares, or been employed by the company, for two years.
If you don’t meet the conditions for BADR but your spouse does, it may be worth transferring your shares to them, as the business asset disposal should be valid for all the shares, including the newly transferred ones.
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