Business Asset Disposal Relief

Sole trader and freehold workshop: am I overlooking something?

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My client (self-employed, sole trader) has operated out of a freehold workshop for several years.  The workshop is owned by his wife and until a couple of years ago, my client paid rent to his wife.

My client is intending to retire in the very near future and we are looking at the question of business asset disposal relief (BADR).  If my client's wife were to transfer the workshop to him (no gain / no loss) and my client were to continue trading for a short while, would BADR be available on a sale of the workshop within three years of ceasing to trade?  (As yet, no decision has been made as to whether to try to sell or to let the workshop after cessation.)

Although the asset has been used in the business for years, it has not been owned by my client.  Any period of ownership by my client prior to cessation would be relatively short, but in order to qualify for BADR, the asset just needs to be in use in the trade at the date the business ceased.

I can't help feeling that I might be overlooking something.  I will be grateful for any and all comments.

Replies (5)

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By Mr_awol
15th Feb 2022 11:04

Geoff56 wrote:

Although the asset has been used in the business for years, it has not been owned by my client.  Any period of ownership by my client prior to cessation would be relatively short, but in order to qualify for BADR, the asset just needs to be in use in the trade at the date the business ceased.

I can't help feeling that I might be overlooking something.  I will be grateful for any and all comments.

Are you sure ?

Whilst the wife owned the property for the 2 year qualifying period and the husband receives her base cost, I'm not convinced he inherits her right to BADR. In fact i thought he categorically doesn't.

TBH this is one of those things i remain 'aware of' but always have to look up to double check. Admittedly i could have done that, but that'd be a bit like doing your homework for you. Someone else (TD or the like) may pop along that is 100% sure of the position off the top of their head. Otherwise, you might also want to think about what might happen if you turn the business into a partnership (may or may not make it better or worse).

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Replying to Mr_awol:
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By Geoff56
15th Feb 2022 11:20

Thanks. My understanding is that it is the business that must have been owned for two years. I don't believe there is any requirement for length of time for use of the asset, beyond its being in use for the business at the time of cessation (CG63975).

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Replying to Geoff56:
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By Mr_awol
15th Feb 2022 12:20

OK, I've caved and looked it up.

You (and CG63975) are, effectively, looking at S169 (2) (b) which refers to "a disposal of (or of interests in) one or more assets in use, at the time at which a business ceases to be carried on, for the purposes of the business"

S169 (4) then goes on to state that a disposal within paragraph (b) of that subsection is a material disposal if:
(a) "the business is owned by the individual throughout the period of 2 years ending with the date on which the business ceases to be carried on, and"
(b) that date is within the period of 3 years ending with the date of the disposal.

Not that i will remember the above in future - I'll continue to flag 'BADR on trf?' on my notes and have to look it up again i imagine. I tend to see a lot more BADR cases involving shares in close companies than i do STs or Pships.

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Replying to Mr_awol:
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By Geoff56
15th Feb 2022 13:02

Thank you again, Mr awol. My reading of this indicated that BADR would be available in the situation I described in my OP.

However, I haven't dealt with BADR or its predecessor for a while and I was/am seeking reassurance that I am not overlooking something that would deny BADR. I just have a niggling feeling there might be more to it than I am seeing.

I did spend some time doing my homework and came to a point of view, but the second opinion of others more familiar with BADR than myself, is always to be welcomed.

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Replying to Geoff56:
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By Mr_awol
15th Feb 2022 13:49

No worries. Others on here probably knew that without needing to look it up at all (or not perhaps, given the number of views - 186 so far - but lack of responses) but I just don't get involved in unincorporated business disposals enough for this to stick I suppose. Plus this just 'feels' quite loose.

Things i probably should know by now but always have to look up include:
- Whether the three year clock applies to each distribution individually or whether the final one is all-important
- Whether qualifying ownership for BADR passes between spouses on transfer
- On a similar theme, whether periods of PPR pass between spouses on transfer - and the relevant date of change, implications, etc
- That kids, dogs and horses are cute at first, but they grow, become a pain in the [***], and eventually cost an absolute fortune.

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