What is Business Asset Disposal Relief (BADR)?

Members’ Voluntary Liquidation (MVL) is a process used to close a solvent company, meaning it can pay all its debts. During MVL, the company’s assets are sold off, and any remaining funds are distributed to the shareholders. It’s a voluntary decision made by the company’s directors and approved by its shareholders to wind up the company’s affairs in an orderly manner.

Business Asset Disposal Relief, formerly called Entrepreneurs’ Relief, reduces the Capital Gains Tax payable on qualifying disposals of business assets. When you use a Members’ Voluntary Liquidation (MVL) to close a solvent company, you may be eligible to claim Business Asset Disposal Relief. That will reduce the rate of Capital Gains Tax on the profit you take out of the business to just 10%.

Here we discuss how Business Asset Disposal Relief in a Members’ Voluntary Liquidation works, what it means for company directors and the eligibility criteria.

A Members’ Voluntary Liquidation is a formal method of closing a company that can pay all its debts. It is commonly used by directors who are ready to retire, want a new challenge or have no further need for the business. By liquidating the company, they can extract the value from it, whether it’s cash, physical assets or both, in the most tax-efficient way.

The MVL procedure brings tax savings when compared to other solvent company closure methods such as Strike Off. In an MVL, all shareholder distributions are taxed as capital rather than income, and higher-rate taxpayers currently pay Capital Gains Tax (CGT) at 20% compared to a dividend tax rate of 33.75%.

If you are eligible, you can also apply for Business Asset Disposal Relief towards the end of the MVL procedure, which reduces the CGT payable on qualifying assets to just 10%. That can lead to significant tax savings.

When you close a solvent company via a Members’ Voluntary Liquidation, you may be eligible to claim Business Asset Disposal Relief (BADR). Importantly, you can only claim BADR by entering solvent liquidation. You cannot claim it if you strike the company off.

To be eligible for BADR, you must:

• Be a director, officer or employee of the company
• Have been an employee or officer holder of the company or owned shares in it for at least two years before the business ceased trading
• Own at least 5% of the company and 5% of the voting rights
• Be entitled to at least 5% of either the company profits or disposal proceeds

You can claim Business Asset Disposal Relief if you meet the eligibility criteria and have not exceeded your lifetime BADR limit of £1 million worth of qualifying capital gains.

When you close your company via a Members’ Voluntary Liquidation, the Insolvency Practitioner you appoint to act as the liquidator will give you the information you need to make your claim.

You can claim BADR in one of two ways. You can claim it through your Self Assessment tax return by providing details of the assets you disposed of and their value. You will then receive a relief on those profits. The deadline to make your claim is 31 January of the year following the tax year the disposal was made. For example, you’d have to claim BADR for a disposal made during the 2024/25  tax year (ending on 5 April 2025) by 31 January 2027. 

The other way is to complete Section A of the Business Asset Disposal Relief helpsheet (form HS275). You’ll need to provide a description of the assets and your calculations showing the capital gain you’re claiming BADR on and the amount of relief due.

If you’re thinking about closing your solvent limited company, a Members’ Voluntary Liquidation with Business Asset Disposal Relief could be the most tax-efficient option. Get in touch with our team to arrange a free, no-obligation consultation. We can talk you through the process, discuss your eligibility for BADR and guide you through the MVL procedure.