Is your business ‘trading’ enough to qualify for BADR?

For owners preparing to sell, Business Asset Disposal Relief (BADR) can provide a valuable reduction in Capital Gains Tax (CGT), but only if the company meets the right criteria.

A recent tax case has underlined just how important it is to understand the rules around what counts as ‘trading’.

The case involved the Chelsea Yacht & Boat Company, whose directors believed income from boat moorings qualified as trading income. HM Revenue & Customs (HMRC) disagreed, arguing it was income linked to land ownership, not trade, and the tribunal ruled in HMRC’s favour.

The owners lost out on the relief, facing a much higher tax bill.

More businesses are now generating mixed income, combining property, land or licence revenue alongside services, creating greater uncertainty around BADR eligibility.

At the same time:

• HMRC scrutiny of claims is increasing
• BADR rates are changing from 14 per cent in April 2025 to 18 per cent in April 2026
• The market is seeing a surge in company sales and liquidations, triggering more enquiries from HMRC

With deadlines looming, clarity on what qualifies as trading income is vital. Misjudging this could mean thousands lost to unexpected tax.

Protecting your position:

• Audit your income sources carefully, is it active trading or passive income?
• Keep clear financial separation between trading and non-trading income
• Take professional advice, written guidance could protect you if questioned
• Factor in increased HMRC scrutiny when valuing a sale
• Move quickly, the current 14 per cent rate will soon be gone

The Chelsea Yacht case serves as a warning that you should not assume your income meets the test, get expert advice early.

Our tax and accounting specialists can guide you through the rules and help secure the best outcome when you sell your business. Contact us today for help.