Budget 2021 – Still time to prepare for any changes to Business Asset Disposal Relief

In the lead up to the Budget on 3 March, we have seen a number of business owners giving serious thought to one particular aspect of the current Capital Gains Tax (CGT) regime – Business Asset Disposal Relief (BADR). This is due to speculation that the relief may be diminished, abolished or linked to increased CGT rates. Many well-informed business owners are taking advantage of BADR now, before any potential changes to its application may be announced in the Budget.  We have developed time-critical processes to assist clients to implement relevant transactions quickly and efficiently.

As a reminder, BADR (formerly known as Entrepreneurs’ Relief until it was renamed in April 2020) reduces the rate of CGT to 10% on a gain arising out of a “qualifying business disposal”. Subject to proper analysis and relevant tax advice, transfer of the whole (or part) of a business and/or its assets is in many cases one example of a qualifying business disposal.  Selling a controlling share interest in a trading company is also usually a qualifying business disposal.

Depending on what is being sold, certain conditions need to be met in order for BADR to apply. In addition, an individual must not have exceeded their £1 million lifetime cap – this is the maximum value of gains that can benefit from BADR. This cap was imposed from 11 March 2020 (previously the relief was far more generous).

Business owners can currently benefit from BADR usually in the following scenarios:

• When they sell all or part of their business whether by way of share sale or sale of business and assets.
• If they put their company into a Members’ Voluntary Liquidation (MVL). This can only occur if the company is solvent (i.e., its assets exceed its liabilities) and the directors must swear a statutory declaration to this effect. After the company’s assets are sold and its liabilities are settled, the net proceeds are paid to the shareholders on which they would claim BADR.

If any changes to BADR are introduced in the Budget they may not come into effect immediately, so it is not too late for sell-side business owners to take advice or implement preparatory steps to take advantage of BADR before any changes to the relief in the Budget. For buy-side acquirers, time pressure will generate competition and create opportunities for domestic and international investors to acquire UK businesses that may be selling at lower values. Advisors who are well-versed in fast turn-around transactions will be essential if relevant transactions are to be successfully completed to beat the deadline for the introduction of any changes to the BADR regime.

This note is intended for general information only and should not be relied upon.  The law is stated as at 5 February 2021.  If you need advice on your particular situation, please contact Richard Baxter or Stephen Morrall or your usual contact.

Hannah Solel, Trainee Solicitor, also contributed to this post.