Entrepreneurs’ Relief is Now “Business Asset Disposal Relief”

Entrepreneurs’ Relief (ER) was introduced for gains made after 5 April 2008, and replaced the old “Taper Relief” as applied to qualifying business assets. The 2020 Budget contained provisions for it to be renamed as “Business Asset Disposal Relief” (“BADR”). The new BADR is essentially the old ER but with a reduced lifetime allowance.  

Under ER, there was a cumulative lifetime allowance of £10,000,000, applicable to gains on one or more disposals of qualifying business assets, either together or over the years. Instead of being charged at the more common 20%, the first £10 million of such gains were charged to tax at 10%. For disposals made on or after 11 March 2020 under the new BADR title, that lifetime limit has been reduced to £1,000,000.  

Definition of Business Assets for BADR Purposes 

“Business Assets” are strictly defined for ER/BADR purposes – the following is a basic summary of the qualifying circumstances: 

• A disposal of a sole trading business held for at least 2 years, or an interest likewise held in a partnership, provided it is a trading business and not an investment business  
• A disposal of “part of a business” – this has to be an identifiable part of the business, not just an asset used in the business, so for example, a farmer could not claim ER/BADR on the sale of a few of his fields, but he could if he sold his pasture, milking parlour, and dairy herd, while keeping his arable land – that would be a sale of a “part” of his business (the dairying part).  
• An associated sale of assets used in the business, alongside the disposal of a substantive interest in, or (at least partly) retiring from, or ceasing the business.  
• A sale of shares in a trading company, provided the shareholder was an employee or a director of the company, AND had held at least 5% of the voting shares and income/capital rights for at least two years before the sale.  

There is now a separate form of relief available for long-term investors in eligible trading companies. This will allow ‘external’ investors, who are not otherwise involved in the business, to benefit from the 10% rate, provided they subscribe for new shares and hold on to them for at least 3 years from 6 April 2016.  

Note that ER/BADR is available to trading businesses such as property development businesses, but not generally to investment businesses such as property letting activities. Where a business has both trading and investment activities, then ER/BADR will potentially still be available so long as the investment proportion is not “substantial” (taken to be more than 20% of the overall business).  

The detailed rules for Entrepreneurs’ Relief/Business Asset Disposal Relief and the new Investors’ Relief are complicated, and you should consult a Tax Adviser if you think you might qualify for either, on a sale/disposal that you are contemplating. The rules have been repeatedly tweaked in the last few years. For example, the qualifying assets now need to have been held for at least two years, broadly for any disposal on or after 6 April 2019, whereas prior to that, the minimum holding period was just one year.