When you sell your business or shares in your own company, Business Asset Disposal Relief (BADR) can significantly reduce the Capital Gains Tax you pay on the proceeds. But qualifying is more complex than many business owners realise — and the relief rates are changing.
This is not tax or financial advice. BADR qualifying conditions are complex. Consult a qualified accountant or tax adviser before selling your business.
What is Business Asset Disposal Relief?
BADR is a Capital Gains Tax relief that taxes qualifying business disposals at a reduced rate rather than the standard CGT rate. It was previously known as Entrepreneurs’ Relief until it was renamed in March 2020.
| Standard CGT (shares/assets) | With BADR | |
|---|---|---|
| Basic rate taxpayer | 18% | 14% |
| Higher rate taxpayer | 24% | 14% |
| Additional rate | 24% | 14% |
The relief applies equally regardless of whether you’re a basic or higher rate taxpayer — it gives a flat 14% rate on qualifying gains in 2026/27.
BADR Rates — Past and Future
The BADR rate has changed significantly and will continue to change:
| Tax year | BADR rate | Standard CGT rate |
|---|---|---|
| 2023/24 to 2025/26 | 10% | 24% (higher rate) |
| 2026/27 | 14% | 24% |
| 2027/28 onwards | 18% | 24% (expected) |
Key point for 2026/27: If you are planning to sell your business, the BADR rate of 14% in 2026/27 is lower than the 18% that is expected from 2027/28 onward. This may be a significant timing consideration.
The £1 Million Lifetime Limit
BADR applies to a lifetime limit of £1 million in qualifying gains across all disposals during your lifetime. Once you have used your full £1 million, any additional qualifying disposals attract the standard CGT rate.
- The £1 million is cumulative — gains from previous qualifying disposals count against it
- It cannot be reset or transferred
- Married couples and civil partners each have their own independent £1 million lifetime limit
Before the 2020 reduction: The lifetime limit was £10 million. Business owners who had previously claimed more than £1 million under Entrepreneurs’ Relief have already used their full BADR allowance.
Who Qualifies for BADR?
BADR applies to the following types of disposals:
1. Sole Traders and Partners — Disposing of All or Part of a Business
You must:
- Have owned and run the business (or interest in a partnership) for at least 2 years before the disposal
- The disposal must involve the whole business or a definable part of it (not just a single asset)
Qualifying disposals include:
- Selling the entire sole trader business
- Closing the business and selling assets
- Selling your interest in a business partnership
2. Shares in a Personal Company
You must have, throughout the 2 years before disposal:
- Held at least 5% of the ordinary share capital (personal company test)
- Held at least 5% of voting rights attached to shares
- Been an employee or officer (director) of the company
- The company must be a genuine trading company (or holding company of a trading group)
From October 2024, HMRC added an additional test: you must also be entitled to at least 5% of either the distributable profits or the assets on a winding up.
IMPORTANT: The shareholding tests must be met for a continuous 2-year period. Dilution below 5% before sale — for example following a funding round — can disqualify you.
3. Assets Used in Your Business or Personal Company (Associated Disposals)
If you sell an asset (e.g., your business premises) at the same time as disposing of your business or shares, BADR may apply if:
- You owned the asset personally
- The asset was used in the business for at least the 2-year qualifying period
- You receive at least some consideration for the disposal (gifts may not qualify)
What Does NOT Qualify
| Scenario | BADR available? |
|---|---|
| Investment company (property rental, holding investments) | ❌ No — must be trading |
| Non-trading activities exceed 20% of turnover/assets | ❌ Partial or no relief |
| Shares held outside a personal company (e.g., AIM shares) | ❌ No |
| Selling individual business assets while continuing to trade | ❌ No — must also be ceasing/reducing business |
| Shares in a company you don’t work for | ❌ No |
| Shares held for less than 2 years | ❌ No |
| Minority holding below 5% | ❌ No |
How to Claim BADR
BADR is claimed through your Self-Assessment tax return. The process:
- Report the disposal on the Capital Gains Summary pages (SA108) of your Self-Assessment return
- Complete HS275 — the Business Asset Disposal Relief helpsheet published by HMRC
- Elect to use BADR by ticking the appropriate box on SA108
- Pay the resulting CGT at the 14% BADR rate (rather than 18%/24% standard rate)
- Deadline: Your Self-Assessment return must be filed by 31 January following the end of the tax year in which the disposal occurred
You must make the BADR election within 12 months of the 31 January filing deadline for the relevant tax year. Missing this deadline forfeits the relief.
Real Example: How BADR Works
Scenario: Sarah has run a marketing consultancy as a sole trader for 8 years. In 2026/27, she sells the business for £900,000. Her allowable costs (original investment + improvements) are £300,000. Her gain is £600,000.
| Calculation | Without BADR | With BADR |
|---|---|---|
| Gain | £600,000 | £600,000 |
| Less annual exempt amount | −£3,000 | −£3,000 |
| Taxable gain | £597,000 | £597,000 |
| CGT rate | 24% | 14% |
| CGT payable | £143,280 | £83,580 |
| Tax saved | £59,700 |
Sarah has used £600,000 of her £1 million lifetime limit. She has £400,000 remaining for future qualifying disposals.
BADR and Investors’ Relief
Investors’ Relief is a related relief that also taxes qualifying gains at 14% (in 2026/27). It applies to external investors (not employees) in unlisted trading companies who have held shares for at least 3 years. The lifetime limit for Investors’ Relief is separate from BADR — it is also £1 million.
If you hold shares as both an investor-director (qualifying under BADR) and have separate holdings as a pure investor (qualifying under Investors’ Relief), they use separate allowances.
Pre-Sale Tax Planning with BADR
If you are considering selling your business, the following planning points matter:
Check the 2-Year Clock
Make sure the 2-year qualifying period is met. If you converted from sole trader to limited company relatively recently, or restructured the business, check whether the 2-year period resets.
Maintain the 5% Shareholding
If your company has been through funding rounds or issued new shares to employees via EMI options, monitor your shareholding carefully. Dilution below 5% can disqualify you — though there is anti-dilution protection in certain circumstances.
Consider the Timing (2026/27 vs 2027/28)
The BADR rate rises from 14% to 18% from 6 April 2027. On a £1 million gain, completing the sale before 5 April 2027 saves an additional £40,000 in CGT compared to completing one day later. Take this into account when agreeing contractual completion dates.
Gift Aid and Pension Contributions
Even with BADR, pension contributions can create ongoing tax efficiency after exit. Consider whether to make large pension contributions in the same tax year as the disposal to reduce your overall adjusted net income.
BADR vs Investors’ Relief Summary
| Feature | BADR | Investors’ Relief |
|---|---|---|
| For whom | Business owners/employees | External investors |
| Min shareholding | 5% | 5% |
| Employment required | Yes | No |
| Min holding period | 2 years | 3 years |
| CGT rate (2026/27) | 14% | 14% |
| Lifetime limit | £1 million | £1 million |
| Company type | Trading only | Unlisted trading only |