What is Business Asset Disposal Relief in Scotland?

BADR is a tax relief designed to incentivise business owners to grow and invest in their companies by increasing the returns they generate when they eventually sell or close them. Although the tax benefit BADR provides has reduced over the last couple of years, it still offers a significant saving for higher and additional-rate taxpayers. 

The relief is available to those who are closing, selling shares or selling assets in a profitable company. There are various routes you can use to close a solvent company, each with its own BADR implications. 

Members’ Voluntary Liquidation (MVL)

• You can use a Members’ Voluntary Liquidation to close a business that can pay all its debts in full.
• It is usually the most tax-efficient way to close a company with retained profits (cash and assets) of over £25,000. That’s because the money paid to shareholders is distributed as capital and subject to Capital Gains Tax rather than Income Tax or Dividend Tax.
• If you meet the qualifying conditions, you can use BADR to reduce the rate of Capital Gains Tax you pay on the distributions. 

Company Strike Off

• Strike Off can be a cheap and straightforward way to close a solvent business with minimal retained profits, as you don’t need to hire a licensed liquidator. 
• However, it is less tax-efficient if there are significant assets or profits to return to the shareholders. That’s because only £25,000 of shareholder distributions are treated as capital. If the total shareholder distribution exceeds £25,000, the whole amount, not just the excess, is taxed as income.
• If you are eligible, you can claim Business Asset Disposal Relief to reduce the rate of CGT on distributions under £25,000. However, you cannot claim BADR if the distribution exceeds £25,000, as BADR only applies to capital gains. 

Selling assets before closure

• In some cases, you may choose to sell company assets, such as property, equipment or intellectual property, before closing the company.
• You may still be eligible to claim BADR to reduce the rate of Capital Gains Tax you pay on the profit you make if you have owned the business for at least two years before you stop trading.
• The disposal must occur while the company is still trading, or within three years of it ceasing trading, for the gain to qualify for BADR.

There are several conditions you must meet to qualify for BADR. They include:

• The company must be a trading company
• You must have been an employee or officeholder of the company for at least the last two years
• You must have held a 5% shareholding in the company for at least two years leading up to the disposal
• Any assets you dispose of must have been used in the business when it ended
• The winding up and distributions must take place within three years of the company ceasing to trade

If you are eligible for BADR, there is a lifetime limit of £1 million on qualifying gains. There is no limit on how many times you can claim, but you must not exceed that limit across your disposals. 

A Members’ Voluntary Liquidation (MVL) is a common way to close a solvent company (i.e. a company that can pay all its debts). If you’re ready to retire and have no one to carry on the business, want to pursue a new venture, or simply no longer need it, an MVL can be a tax-efficient way to close it. 

You will need to appoint a licensed Insolvency Practitioner to administer the liquidation on your behalf. They will take control of the company, wind down its affairs and sell its assets. They will then use the proceeds from the asset sale to repay any company debts, before distributing the profit among the shareholders and dissolving the company.  

That is where Business Asset Disposal Relief comes in. If you hold at least 5% of the company’s shares and meet the other eligibility criteria described above, you will be able to claim BADR to reduce the rate of CGT you pay on those profits. That can significantly reduce your liability, particularly if you are a higher or additional-rate taxpayer.

There are two ways to claim BADR in Scotland: You can:

• Complete the capital gains section of your self assessment tax return and click the BADR box; or 
• Fill in Section A of the BADR helpsheet (HS275) and submit it alongside your self assessment tax return.

You must submit your claim by 31 January following the end of the tax year in which you made the disposal. For example, if you close a business in the 2025/26 tax year, you must submit your claim by 31 January 2028. 

You should also keep records to support your claim. That includes contracts of sale, liquidation papers and financial statements that show the business’s trading activity. 

If you want to retire or have a business you no longer need, the first step is to consult a licensed Insolvency Practitioner. At Scotland Liquidators, we can guide you through the process of closing your limited company in a straightforward, low-cost and tax-efficient way. Please get in touch for a same-day phone consultation or arrange a meeting at one of our offices in Scotland.