An individual disposing of shares or securities in their personal trading company may be able to reduce their Capital Gains Tax (CGT) liability by claiming Business Asset Disposal Relief (BADR) (called Entrepreneurs' Relief (ER) prior to 6 April 2020). The rate of CGT on qualifying disposals is 10%.

There is no minimum number of shares that have to be disposed of to qualify for BADR. The individual disposing of the shares or securities may also be able to claim BADR on an 'associated disposal' of an asset owned personally and used in the company's business provided the disposal is linked with a qualifying disposal of at least a 5% shareholding in the company.

Any type of disposal can qualify for BADR, including a:

• sale;
• gift;
• transfer at undervalue; or
• capital sum derived from an asset.

It should be remembered that, from April 2016, a distribution in a winding up will not be treated as a capital distribution if the purpose of the winding up is to avoid or reduce a charge to income tax and within two year period the shareholder carries on a trade or activity which is the same or similar to that of the company or a subsidiary.

If the shares or securities are exchanged for other shares or securities as part of a reorganisation of share capital, or a company reconstruction, an election can be made under TCGA 1992, s. 169Q to disapply the provisions of s. 126 and s.127 so that there is a disposal at the time of the reorganisation or reconstruction in respect of which BADR can be claimed.

Investors can benefit from both BADR and the deferral of gains reinvested under EIS. This means that gains which are eligible for BADR at the time of the original disposal, but which are instead deferred into investments qualifying for EIS can benefit from BADR when the gain is realised, for example when the shares are sold.

From 6 April 2019, if a share issue dilutes an individual's shareholding, so that the company ceases to be their 'personal company', they may be able to elect to be treated as having made a disposal of their shares at market value and reacquired them at the same value immediately before the share issue so that they can claim BADR on the gain.

For disposals made on or after 11 March 2020 the lifetime limit for BADR (including earlier claims for ER) was reduced from £10m to £1m. Anti-forestalling provisions for disposals made on or after 11 March 2020 apply where attempts are made to lock in the previous £10m lifetime limit through the use of:

• unconditional contracts;
• reorganisations of share capital;
• exchange of securities etc.