{"id":6437,"date":"2025-06-19T09:35:08","date_gmt":"2025-06-19T08:35:08","guid":{"rendered":"https:\/\/www.bainesjewitt.co.uk\/blog\/?p=6437"},"modified":"2025-06-19T08:35:10","modified_gmt":"2025-06-19T08:35:10","slug":"trading-or-not-why-income-nature-matters-for-badr","status":"publish","type":"post","link":"https:\/\/www.bainesjewitt.co.uk\/blog\/trading-or-not-why-income-nature-matters-for-badr\/","title":{"rendered":"Trading or not? Why income nature matters for BADR"},"content":{"rendered":"

Business Asset Disposal Relief (BADR), formerly known as Entrepreneurs\u2019 Relief, offers business owners a reduced Capital Gains Tax (CGT) rate on disposals of shares or assets in a trading business.<\/p>\n

<\/p>\n

Trading is the key word here. A recent tax tribunal involving Chelsea Yacht & Boat Company has highlighted the risks of misunderstanding what counts as trading income.<\/p>\n

The owners tried to claim BADR after selling their shares. HM Revenue & Customs (HMRC) refused, arguing that mooring income was not trading, but a right over land, and the tribunal agreed.<\/p>\n

The result? No BADR relief.<\/p>\n

What counts as trading?<\/strong><\/h3>\n

BADR only applies where the business is genuinely trading.<\/p>\n

If income comes from passive sources such as rents, land rights or licences, HMRC may view the company as non-trading, making you ineligible for the relief.<\/p>\n

In the Chelsea Yacht case, the business owners believed their income from mooring boats was part of a trading activity.<\/p>\n

HMRC saw it differently, they argued it was simply exploiting land rights. The tribunal sided with HMRC, a costly outcome.<\/p>\n

Why this is a growing risk for business owners<\/strong><\/h3>\n

Several factors mean more owners could face this kind of problem:<\/p>\n

    \n
  • Many businesses have mixed income streams (property plus services, assets plus rights).<\/li>\n
  • HMRC is applying more scrutiny to BADR claims, especially where the business includes property or land-related income.<\/li>\n
  • BADR rates are changing, prompting more owners to accelerate exit plans, and more HMRC enquiries in response.<\/li>\n<\/ul>\n

    The clock is ticking on BADR rates <\/strong><\/h3>\n

    As of April 2025, the BADR rate rose to 14 per cent. In April 2026, the rate will increase again to 18 per cent.<\/p>\n

    This is driving a wave of disposals. Voluntary liquidations hit record highs ahead of April 2025, but the risk of getting caught out is rising too.<\/p>\n

    If you misjudge whether your income is truly trading, you could face a much bigger tax bill than expected.<\/p>\n

    How to protect your claim<\/strong><\/h3>\n
      \n
    • Review your income streams \u2013 Are you generating active, trading income, or passive income linked to land or property?<\/li>\n
    • Segment your accounts. Keep clear records of trading and non-trading income.<\/li>\n
    • Get written advice \u2013 Documented professional advice gives you stronger protection if HMRC reviews your return.<\/li>\n
    • Be realistic on valuations. If you are selling a business with land-linked income, prepare for HMRC scrutiny.<\/li>\n
    • Act before April 2026. If you are planning to sell, do not delay. The current 14 per cent rate won\u2019t last long.<\/li>\n<\/ul>\n

      The Chelsea Yacht case is a warning to all business owners that what you think counts as trading income and what HMRC will accept can differ.<\/p>\n

      If you are considering a sale, restructuring your business, or planning retirement, get advice early.<\/p>\n

      The sooner you review your income streams, the better your chance of securing the right tax treatment and avoiding nasty surprises later.<\/p>\n

      Our team of accountants and tax experts can help you with the sale of your business and making sure it is structured in the most tax-efficient way. Contact us today. <\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

      Business Asset Disposal Relief (BADR), formerly known as Entrepreneurs\u2019 Relief, offers business owners a reduced Capital Gains Tax (CGT) rate on disposals of shares or assets in a trading business.<\/p>\n","protected":false},"author":2,"featured_media":6440,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[24,125],"tags":[],"_links":{"self":[{"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/posts\/6437"}],"collection":[{"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/comments?post=6437"}],"version-history":[{"count":1,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/posts\/6437\/revisions"}],"predecessor-version":[{"id":6438,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/posts\/6437\/revisions\/6438"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/media\/6440"}],"wp:attachment":[{"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/media?parent=6437"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/categories?post=6437"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.bainesjewitt.co.uk\/blog\/wp-json\/wp\/v2\/tags?post=6437"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}