Is Business Asset Disposal Relief At Risk?

Is business asset disposal relief at risk? Who knows but it could be with the Chancellor looking to find another £20 billion of public funds to finance UK Plc. 

This is a handy relief if you are winding up your interest in a business. It commonly features as one of the triggers for a Members Voluntary Liquidation.

If you qualify you can anticipate paying capital gains tax at 10% rather than 20% of your interest in the shares of a limited company. 

It was curiously formerly known as Entrepreneurs’ Relief notwithstanding there were those who highlighted its impact on entrepreneurial activity was perhaps unproven (see the article called Entrepreneurs’ Relief has cost £22 billion over the past 10 years. Was it worth it?).

It was perhaps aptly renamed Business Asset Disposal Relief (“BADR”) in paragraph 7 of Schedule 3 of the Finance Act 2020. Tax Policy Associates have highlighted this name change as follows in its article “How could Rachel Reeves raise £22bn of tax?“:

This is a capital gains tax relief supposedly for the benefit of entrepreneurs. But the Treasury officials forced to create it named it “BAD” for a reason.

Since its introduction in 2008, its survival has constantly been the subject of speculation each time the budget beckons. The chattering classes typically start to consider it well in advance of this annual finance fest to ponder if its elimination or reduced effectiveness is around the corner, frequently triggering a rush for the Members Voluntary Liquidations and distributions to the shareholders to sprout before budget day.

The unusual feature of BADR is it is triggered when an owner exits a business rather than during the period of running it. So you have to wait until the end to benefit from this relief. And you might therefore be in for a long wait to reap the fruits of these arduous business adventures.

BADR is estimated to cost the Treasury around £1 billion a year. Not enough to plug the Chancellor’s suggested £20 billion shortfall but perhaps a small step to sort out some of it and it seems this is not something that can be overlooked.

The Chancellor could eliminate it or reduce the lifetime limit from £1 million as Rishi Sunak did when he was Chancellor in March 2020 when it dropped down from £10 million.

So will BADR be left alone with another year occasioned by its customary cheer or will some of us need a jolly good beer?