A crucial area that I expect to feature in the forthcoming June 2023 Advanced Tax exam is Business Asset Disposal Relief (BAD relief)

This is simply the new revised entrepreneur’s relief. It is available on the sale of a sole trader’s business assets (usually buildings and goodwill) as long as the business has been owned for 2 years and the entire business has been sold.

In terms of the 2-year ownership period, we can amalgamate the ownership period of the sole trader and the shares where a going concern business is transferred to a limited company.

Remember that when goodwill is transferred to a close company (controlled by 5 or less individuals) and the individual owns 5% OSC, BAD relief cannot be claimed don the goodwill.

BAD Relief is also available on both quoted and unquoted shares as long as the individual owns at least 5% OSC and has been employed by the company for at least 2 years.

Watch out for associated disposals which are buildings sold within 3 years of cessation of trade which are also eligible for BAD relief as long as they were used by the business rent free.

There is a lifetime limit of £1M and the gain eligible for BAD Relief consumes the basic rate band so other gains in the same tax year will be taxed at either 20% or 28%

It is therefore important to allocate capital losses and the annual exemption to the gains suffering the higher rate of tax such as residential gains which will be taxed at 28%.  

The way to remember BAD relief is to think of the pop superstar whose legendary song of the same name made the word part of the common vernacular.

So, just remember Michael Jackson and remember to tax individual’s business gains up to £1M at 10%. I also have a podcast episode you can listen to on Neil Da Costa Tax Exam Podcasts.

Hope your revision is going well. Tax is technical. If you need my condensed notes for the September 2023 exam which makes it simple to learn the technical rules, you can purchase them using the link below:

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