Business asset disposal relief on a share sale
In June 2024, Ravi sold his entire shareholding in Techco Ltd, an unquoted trading company. He had acquired 10,000 ordinary shares (10% of the ordinary share capital, carrying full voting and dividend rights) in May 2021 for £100,000. He also held 5,000 8% preference shares acquired in 2019 for £50,000. The sale price was £600,000 for the ordinary shares and £60,000 for the preference shares. In January 2024 he transferred 1,000 ordinary shares to his wife, Meera, as a gift; she still held them at the sale and sold them for £60,000. Ravi has no other disposals in 2024/25 and has £40,000 of capital losses brought forward.
1. Which parts of Ravi's and Meera's shareholdings qualify for business asset disposal relief?
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BADR requires at least 5% of the ordinary share capital and voting rights, held for two years, in a trading company.
- Ravi held 9,000 ordinary shares (9%) at sale and had held them since May 2021, over two years. Those shares qualify.
- Meera held 1,000 ordinary shares (1%) for only about five months. She fails the 5% test and the two-year holding period, so her shares do not qualify.
- The preference shares are not ordinary shares for BADR: they carry a fixed dividend and no meaningful voting rights. They are taxed at the normal CGT rate.
The gift to Meera did not create a gain because transfers between spouses are on a no gain/no loss basis, but it wasted BADR on 1% of the company because she could not satisfy the conditions.
2. Calculate Ravi's and Meera's chargeable gains and the CGT payable for 2024/25, stating the allocation of the annual exemption and losses.
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Gains
- Ravi's ordinary shares: proceeds £540,000 (9,000/10,000 × £600,000) − cost £90,000 = £450,000.
- Meera's ordinary shares: proceeds £60,000 − base cost £10,000 = £50,000.
- Preference shares: £60,000 − £50,000 = £10,000. Total gains = £510,000.
Losses and exemption Brought-forward losses must be set against gains. Allocate the £40,000 to the non-BADR gains, reducing them from £60,000 to £20,000. The annual exempt amount of £3,000 is best allocated to the non-BADR gains, leaving £17,000 taxable at 20%.
CGT
- BADR: £450,000 × 10% = £45,000.
- Non-BADR: £17,000 × 20% = £3,400.
- Total CGT = £48,400.
Had the losses and exemption been allocated differently, the tax would be higher; the allocation should be shown in the return.
3. What practical steps should be taken before 31 January 2026?
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The gain must be reported and tax paid by 31 January 2026 through the self-assessment return; there is no 60-day reporting requirement because the shares are not residential property. Ravi should confirm the trading status of Techco throughout the two-year period, obtain the share valuation and sale documentation, and check that Meera's acquisition was properly recorded at no gain/no loss.
He should also check his lifetime BADR limit: the £450,000 gain uses £450,000 of the £1m limit. If he has made earlier BADR claims, the excess is taxed at 20%. Finally, consider whether a claim or election is needed for any deferred consideration or earn-out.