A demerger involves splitting the trading activities of a single company or group into two or more independent entities. This can be facilitated by distributing the assets of a holding company to its shareholders.
There are special statutory demerger provisions that are designed to make it easier to divide and put into separate corporate ownership the trading activities of a company or group of companies. An exempt demerger will be deemed to occur under these provisions. As a result, the distribution is typically exempt from Income Tax and usually does not trigger any Capital Gains Tax, as the gains are effectively rolled over.
The provisions do not apply where a trading activity is to be sold or becomes owned by a person other than the existing member of the original company.
The provisions allow for the removal of the distribution charge in appropriate circumstances, making the distribution an ‘exempt distribution’. This applies to trading activities only. Companies that utilise the demerger provisions range from small private businesses to some of the largest public companies in the UK.
The legislation also provides for a clearance procedure. Under this a company that wants to demerge trading activities can obtain advance confirmation from HMRC that the distribution that will arise will be an exempt distribution.
If you are thinking about selling a business or shares, it is important to understand how Business Asset Disposal Relief works, particularly with rates set to increase from April 2026.
Business Asset Disposal Relief (BADR) provides a valuable tax advantage, offering a reduced rate of Capital Gains Tax (CGT) on the sale of a business, shares in a trading company or an individual’s stake in a trading partnership.
The present rate of BADR is 14% for disposals made during the 2025-26 tax year. Currently, these rates are set to increase in the 2026-27 tax year starting on 6 April 2026 to 18%. As a result, disposals made after April 2026 will face a higher CGT rate.
These planned changes in the BADR rates can have a significant impact on tax planning for business owners and investors. Furthermore, it is worth noting that upcoming measures in the Autumn Budget could further diminish the benefits of these reliefs.
Despite these changes, the lifetime limit for claiming BADR currently remains at £1 million, which means that individuals can use the relief multiple times, provided their total gains from qualifying disposals do not exceed this threshold.
Changes have also been made to Investors’ Relief. As of 30 October 2024, the lifetime limit for Investors' Relief was reduced from £10 million to £1 million, with CGT rates now aligning with those for BADR at 14% and set to rise to 18% in April 2026.
If you have sold a UK residential property since 6 April 2020, it is important to be aware that the reporting and payment deadlines for Capital Gains Tax have changed. For property sales completed on or after 27 October 2021, any Capital Gains Tax that becomes payable must now be reported and paid within 60 days of completion. This applies where the property is not fully covered by the private residence exemption. For example, where the property was a rental property, a second home, or only partly used as your main residence. If the property was jointly owned, each owner must report their own share of the gain.
To calculate the gain, you will need information about the dates of purchase and sale, the original purchase price, legal fees and other costs, plus any significant improvement expenses. Estate agency and legal costs on sale will also be needed. The sooner you gather these details, the easier it is to meet the deadline.
For other types of capital gains, for example shares, investments, or commercial property sold by a UK resident, the reporting is usually carried out through your Self Assessment return for the tax year concerned. In some cases it is possible to report gains in real time, rather than waiting until the tax return is due, but this depends on the circumstances.
If you use the “real time” Capital Gains Tax service, this is available for UK residents disposing of certain assets (not including UK residential property) in the current tax year. If this route is used, the reporting deadline is by 31 December after the end of the tax year of disposal, with payment due by 31 January.
If you think you may have sold or are planning to sell a property or other asset that could give rise to a taxable gain, please contact us as soon as possible. Early information means that we can ensure the calculations are correct and the reporting deadlines are met, which helps avoid unnecessary interest or penalties.
If you have tenants in your home, it’s essential to understand the Capital Gains Tax (CGT) implications. Typically, there is no CGT on the sale of a property used as your main residence due to Private Residence Relief (PRR). However, if part of your home has been let out, your entitlement to PRR may be affected.
Homeowners who let out part of their property may not qualify for the full PRR, but they could be eligible for letting relief. Letting relief is available to homeowners who live in their property while renting out a portion of it.
The maximum letting relief you can claim is the lesser of the following:
Example:
In this case, the maximum letting relief due is £7,500, which is the lower of:
As a result, you would not owe any CGT—the £75,000 gain is fully covered by £67,500 in PRR and £7,500 in letting relief.
Note that if you have a lodger who shares living space with you or if your children or parents live with you and pay rent or contribute to housekeeping, you are not considered to be letting out part of your home for tax purposes.
Business Asset Disposal Relief (BADR) offers a significant tax benefit by reducing the rate of Capital Gains Tax (CGT) on the sale of a business, shares in a trading company or an individual’s interest in a trading partnership.
On 6 April 2025, the BADR CGT rate increased from 10% to 14% for disposals made in the 2025–26 tax year. However, the rate is set to rise again from 6 April 2026, to 18%. This means that qualifying disposals made after April 2026 will be subject to a higher CGT rate once again.
The lifetime limit for claiming BADR remains at £1 million, allowing individuals to claim the relief multiple times as long as the total gains from all qualifying disposals do not exceed this threshold.
In addition to changes to BADR, there were also changes to Investors’ Relief. Since 30 October 2024, the lifetime limit for Investors' Relief has been reduced from £10 million to £1 million. The CGT rates for Investors' Relief also align with those for BADR, currently set at 14% and also rising to 18% from April 2026.
These increases in CGT rates are significant and will impact tax planning strategies for business owners and investors. It is also important to note that further changes may be announced in the forthcoming Budget that could further chip away to the benefits of this relief.
Business Asset Disposal Relief (BADR) still offers a valuable tax break, but the CGT rate has risen to 14% from April 2025 and will increase again to 18% in April 2026.
BADR provides a valuable tax advantage by offering a reduced rate of Capital Gains Tax (CGT) on the sale of a business, shares in a trading company, or an individual’s interest in a trading partnership.
The limits for BADR increased for disposals made on or after 6 April 2025. This has seen the CGT rate now applied at a rate of 14% (up from 10%). This change is now in effect and applies to any qualifying disposals taking place within the 2025–26 tax year.
The rate is set to increase again from 6 April 2026, to 18%. This means that disposals qualifying for BADR on or after this date will face a significantly higher CGT rate when compared to the previously long-standing 10% rate.
The lifetime limit for claiming BADR remains at £1 million, allowing individuals to benefit from the relief more than once, provided the cumulative gains from all qualifying disposals do not exceed this threshold.
Additionally, changes have been made to Investors’ Relief. The lifetime limit for this relief was reduced from £10 million to £1 million for qualifying disposals made on or after 30 October 2024. In addition, the CGT rates for Investors’ Relief are now aligned with those for BADR, currently set at 14% and increasing to 18% from April 2026.
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