Business Asset Disposal Relief: The Importance Of Checking Your Facts

The qualifying conditions for Business Assets Disposal Relief (BADR), or Entrepreneurs' Relief for those of us resistant to change, is fairly well trodden ground, particularly the requirement to be selling a trading business or a holding company of a trading group. So why has there been a recent flurry of cases on exactly this subject and what can we learn from their outcomes?

Firstly, while activities can change over time, there is often no bright line as to when a company begins to "trade". Tamzin Eyre & Others v HMRC [2025] involved a company set up to make a loan to a third-party property developer, of itself indisputably non-trading activity. When it became clear that the debtor would not be able to repay the loan, the company acquired the property, intending to redevelop it itself. To that end, several planning applications were made and an option granted over an adjacent property. However, the company was sold shortly thereafter and whilst its activities for the one year (now two years) prior to disposal of the shares included preparing to trade (e.g. making planning applications), during the same period they also included carrying out substantial non-trading activities such as holding property as an investment and generating rental income. The case turned on the question of what the company was actually doing during the relevant period and, in essence, it was not doing enough trading, given the longer history of investment activity and substantial rental income received.

BADR still offers significant tax savings but taxpayers must beware of the pitfalls. HMRC and judges alike have little sympathy for taxpayers who fail to do so.

Secondly, it is important to consider how a business actually operates in practice. Moffat and another v HMRC [2025] dealt with whether the target company was a trading company, but in this case the question was whether the taxpayer was carrying on a single activity or multiple and whether the constituent parts were enough to change the character of the whole. The tribunal found that, as 68% of the company's turnover was derived from exploiting property (licence premiums and mooring fees) and separate maintenance charges which were provided at cost, this was substantial non-trading activity. The taxpayer sought to argue their business was akin to that of a hotel, with large amounts of staff time dedicated to boat maintenance. However once the tribunal determined that mooring fees and licence premiums were more akin to rental income received by a landlord and maintenance charges to service charges in a lease, this looks an unsurprising outcome.

Finally, it is crucial to check your dates – and your supporting evidence – carefully. In the case of Whines v HMRC [2025], there were a number of issues with the taxpayer's claim for entrepreneurs' relief, but ultimately, the taxpayer was a director of the company for 10 days short of the requisite qualifying period (at that time, 12 months). Whilst the prior two cases turned on subjective interpretations of the notion of trading, this was a simpler decision, reminding us that the requirements for entrepreneurs' relief (and now BADR) are interpreted strictly. In this case, a simple delay to the disposal of shares by a few weeks could have easily prevented this outcome – a stark reminder always to think carefully about the strict requirements for relief before executing a disposal.

Although not as attractive as it used to be prior to the rate changes in 2024 (with a further increase to 18% due to come into force from April 2026) BADR still offers significant tax savings, but taxpayers must beware of the pitfalls and take professional tax advice prior to making a disposal. These three cases tell us that HMRC and judges alike have little sympathy for taxpayers who fail to do so.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.