Business Asset Disposal Relief (BADR): What Employers and Employees Need to Know About Share Options

📘 Overview

Business Asset Disposal Relief (BADR), formerly known as Entrepreneurs’ Relief, allows individuals to pay a reduced rate of Capital Gains Tax (CGT) when selling qualifying business assets, including company shares.

This relief is particularly relevant to employees holding shares under Enterprise Management Incentive (EMI) or unapproved share option schemes, as it can significantly reduce the tax payable on exit, if the correct conditions are met.

💰 What Is BADR?

BADR enables individuals to pay CGT at a reduced rate on qualifying share disposals, up to a £1 million lifetime limit.

Even with upcoming rate increases, BADR remains one of the most valuable tax reliefs available for founders, employees, and investors.

🏢 Company-Level Conditions

For BADR to apply, whether shares are from EMI or unapproved options, the company itself must meet certain criteria:

1. Trading Status

The company must be a trading company, or the holding company of a trading group.

A trading company is one that conducts substantial trading activities and is not primarily engaged in non-trading activities such as property investment or holding passive assets.

2. Active Trading Period

The company must be a qualifying trading company for at least two years before the disposal date.

3. UK Permanent Establishment (for EMI)

For EMI options, the company must have a permanent establishment in the UK at the time the option is granted.

4. Not in Liquidation

BADR is normally unavailable once a company has entered liquidation, unless the disposal takes place within three years of ceasing to trade.

⚠️ If a company fails to meet these requirements, employees could lose BADR eligibility, even if their personal conditions are satisfied.

💡 BADR and EMI Share Options

EMI options are one of the most effective ways to qualify for BADR, as the rules are simpler and more flexible than for other schemes.

To qualify for BADR on EMI shares, the individual must:

• Have held the EMI option for at least two years before selling the shares (the clock starts on the grant date, not the exercise date).
• Be an employee or director throughout that two-year period.
• Meet all EMI eligibility criteria at the time of grant.

✅ No minimum shareholding requirement applies for EMI holders, a major advantage over unapproved schemes.

Employer Responsibilities

• Grant EMI options in full compliance with HMRC rules.
• Notify HMRC of any EMI option grants by 6 July following the end of the tax year in which they were made.
• Maintain records confirming the company’s trading status and employee eligibility.

⚖️ BADR and Unapproved Share Options

Unapproved options are less tax-efficient and have stricter BADR conditions. Employees or directors can still qualify, but only if they hold a significant shareholding in the business.

To qualify for BADR on shares from unapproved options, the individual must:

• Own at least 5% of the company’s shares and voting rights.
• Be entitled to at least 5% of profits and sale proceeds.
• Hold the shares for at least two years before disposal.
• Be an employee or director throughout that period.

The company must also meet the same trading company criteria as for EMI.

🔍 EMI vs. Unapproved Options: BADR Comparison

🧾 Key Takeaways

✅ BADR can reduce CGT on qualifying share disposals to as low as 10–18%.

✅ EMI options offer simpler, more flexible qualification routes than unapproved options.

✅ The two-year holding period for EMI starts from grant, not exercise.

✅ Companies must maintain trading status and meet EMI conditions to preserve eligibility.

🤝 How Barnes & Scott Can Help

We advise founders and finance teams on how to:

• Structure EMI and unapproved share schemes for BADR eligibility.
• Prepare and submit HMRC EMI notifications and valuations.
• Optimise tax outcomes at exit and ensure full compliance.

💡 Our team helps ensure that both your company and your employees benefit from the maximum available tax reliefs, while avoiding common compliance pitfalls.