Q: My client,is a shareholder in a trading company, currently holding 5.5% of the total shares. These shares have been held for four years. In April 2025, a share-for-share exchange took place, resulting in the dilution of his holding to 3.5%. Consequently, it appears he may no longer meet the criteria for Business Asset Disposal Relief (BADR) on a future sale. Does the share for share trigger a gain, if so, can BADR be claimed at the rate of 14%?
A: When shares are swapped during a company reorganisation, legislation treats the transaction as neither a disposal nor an acquisition; both original and new shares are considered the same asset, with the acquisition date matching that of the original shares (see CG52500). If you clients exchange meets these conditions, no capital gain arises in April 2025. However, because your client would hold less than 5% of share capital, future sales would not qualify for Business Asset Disposal Relief (BADR), which requires a personal company holding.
To qualify for BADR, a individual must materially dispose of shares in their personal trading company - namely, one where they have at least 5% of ordinary share capital and voting rights, plus either 5% entitlement to profits/assets or proceeds from a total share capital sale. The individual must also be an officer or employee for two years prior to the disposal.
The share-for-share rules can be disapplied by electing under s.169Q TCGA1992 within the deadline, triggering an immediate capital gain so BADR may be claimed if the s.169I(6) TCGA92 requirements are met.
Normally, the BADR rate would be 14% for gains before 6 April 2026, but anti-forestalling measures mean reorganisations between 30 October 2024 and 6 April 2026 apply the rate on the election date. Thus, if you client elects in 2026, the 18% rate applies, not 14%. For further details, see CG64175.
Q: My client is a UK VAT registered building contractor and uses staff supplied to them by another VAT registered business. They are being billed monthly, at a very favourable price, and they are in receipt of a proper VAT invoice as per chapter 16 of Notice 700 for this Standard Rated supply. Do they need to make any checks of the supplier before reclaiming the VAT charged to them as taxable input tax?
A: Whenever starting to use a new supplier it is good practice to use HMRC's "Check a UK VAT number" to make sure that the supplier charging you VAT is bona fide. If a purchase is being made and it appears to be "too good to be true" then further checks should always be made to avoid having an input tax claim rejected on the basis that it is connected to fraud. See VATF52100 - The Kittel principle intervention: Overview: The right to deduct and when that right can be denied.
These publications from Markel Tax were correct at the time of going to press and should be considered as principles-based guidance only. To check current validity, call the Markel Tax helpline. ICAEW (as distributor) disclaims all liability for any errors or omissions.
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