To qualify for BADR sellers must have met the following conditions throughout the previous 2 years ending on the date of disposal:
- They must have been an officer or employee of the company (or of another company in a trading group).
- They must have held at least 5% of the company’s ordinary shares and been entitled to exercise at least 5% of the voting rights.
- They must have beneficially been entitled to:
- 5% of the distributable profits and 5% of the company’s assets available on a winding up; or
- 5% of the proceeds if the whole company were sold for market value.
If the above conditions are met, sellers are currently only liable for CGT at a reduced rate of 10%. This is, however, subject to a lifetime limit of £1 million of qualifying capital gains.
Changes made by the Budget
For disposals made on or after 6 April 2025, gains eligible for BADR will be taxed at 14% and, from 6 April 2026, gains eligible for BADR will be taxed at 18%. This means that, from April 2026, BADR relief will be in line with the lower main rate of CGT, which rose from 10% to 18% in the Budget. There was no change to the £1 million lifetime limit.
Comment
The Government’s rationale for reducing BADR gradually is that it will “allow business owners time to adjust to the changes“. Given the future reductions in BADR, business owners may in fact be prompted to consider selling their businesses before the end of the tax year in order to take advantage of the current BADR rate of 10%.
