Business Asset Disposal Relief (BADR) is still available for Members’ Voluntary Liquidations. Act quickly to be sure of taking advantage of the current 10% tax rate.
When business owners decide to sell or wind-up their solvent company using Members Voluntary Liquidations (MVL), they might be eligible for Business Asset Disposal Relief (formerly known as Entrepreneurs’ Relief). This has been an attractive and popular method of reducing the amount of Capital Gains Tax that must be paid on the sale of a company and/or its assets, from the standard rate to a 10% rate, subject to the existing statutory limits.
In recent budgets there has usually been speculation that BADR will either be scrapped or reduced. The March 2020 budget, saw the relief capped at a lifetime limit of £1 million, which at the 10% tax rate means that the maximum saving per person is £100,000. Since then, BADR has remained untouched.
However, against the background of rising Government debt and the need to reduce expenditure, each new budget produces speculation that BADR might be further cut or even scrapped. Now, with a new Government in power that has promised not to increase income tax, National Insurance or VAT, but with a reported £22 billion black hole to fill, other tax increases and/or expenditure cuts are likely to come under the spotlight in the October 30th 2024 Budget, and that includes BADR.
The next budget is due on October 30th 2024. Will BADR be affected?
Government figures show that for 2021/22, the cost of BADR to the Treasury was £900 million and that the number of claimants was c.46,000. We will not know for sure until the budget announcement is made, of course, what will happen to BADR this time. The current consensus is that BADR is right in the firing line for scrapping, or the application of further reductions. Some possible new reductions could include:
- Introducing an increased minimum shareholding and voting rights percentage (currently it is 5% if the shares are non-Enterprise Management Incentive -EMI – eligible)
- Raising the minimum length of share ownership from the current 2 years.
- Introducing a minimum age for eligibility. As of now there isn’t one.
Currently, the main eligibility criteria to qualify for BADR if all or part of a business is being sold, are that the following must apply for at least 2 years up to the date of the sale of the business:
- The individual is a sole trader or business partner*.
- The individual has owned the business for at least 2 years.
(*An MVL is only available for solvent Limited Companies)
The same conditions apply if a solvent business is being closed and additionally that the business’s assets must also be disposed of within 3 years to qualify for the relief.
We are starting to see people asking about whether MVLs can be “completed” before the 30th October 2024 Budget.
The possible scrapping of BADR and the increased tax implications that will have on Members Voluntary Liquidations has already resulted in us receiving more enquiries about MVLs as the budget approaches. But how quickly do directors need to act?
Antony Batty, Licensed Insolvency Practitioner has commented:
“Previous changes to Enterprise Relief/Business Asset Disposal Relief have been effective from the date of the budget and the relevant tax date is the date the assets were distributed. Of course, previous action does not guarantee what the current Chancellor will seek to do this time.
Therefore, the deadline for such new Members Voluntary Liquidations would be mid/late September, if we are to be able to make a distribution pre-30th October.”
Talk to us about Members Voluntary Liquidations and Business Asset Disposal Relief
So, if you are a company owner/director and you are considering winding-up your solvent company, now is the time to talk to us.
If BADR is scrapped, directors could end up paying up to £100,000 more in tax. Even if future budgets do not scrap BADR, further restrictions/reductions could apply. There is unlikely to be a better, more tax efficient time to close your solvent company than now.
Your accountant/tax advisor can advise you on whether your business qualifies for BADR. It can save business owners UP TO £100,000.
In addition, we often work closely with specialist insolvency solicitors, such as Scott Bailey, who can guide directors through the legalities of the MVL process, from preparing and reviewing legal documents and appointing a liquidator, to ensuring procedures are followed correctly and providing legal advice on the implications of liquidating, the duties of directors, and any potential liabilities.
Here at Antony Batty & Company, we have successfully completed hundreds of MVLs since we opened for business in 1997. Click here to see some of our testimonials.
The initial consultation is FREE and without obligation. Contact us at any of our offices:
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