Business Asset Disposal Relief (BADR): What It Is and How the Rules Are Changing
Business Asset Disposal Relief (BADR) is one of the most valuable tax reliefs available to UK business owners. It allows qualifying gains from the sale of a business, or shares in a trading company, to be taxed at a reduced Capital Gains Tax (CGT) rate.
However, upcoming changes to CGT rates from April 2026 mean the tax savings available through BADR are reducing. For business owners considering a future sale, it may therefore be important to review the timing of any disposal.
Below is a detailed overview of how BADR works, who qualifies, and the key conditions to be aware of.
What is Business Asset Disposal Relief?
Business Asset Disposal Relief is a tax relief that applies when individuals dispose of certain business assets. Where the conditions are met, qualifying gains are taxed at a reduced CGT rate, rather than the standard capital gains tax rates.
BADR commonly applies where:
A sole trader disposes of all or part of their business
A partner disposes of their interest in a partnership
A company director or employee sells shares in their personal trading company
The relief can also apply in several related situations, including:
The disposal of assets used in a business when that business ceases, provided the asset is sold within three years of cessation
The sale of shares in a company that has ceased trading, provided they are sold within three years
Certain associated disposals, such as personally owned assets used by the business
The Key Conditions for BADR
While the relief can be extremely valuable, strict conditions must be satisfied.
1. Two-Year Ownership Requirement
In most cases, the business, shares, or assets must have been owned for at least two years prior to disposal.
This means the relevant conditions must generally be met throughout the two-year period leading up to the sale.
2. Personal Company Requirement (for Share Disposals)
Where BADR is claimed on the sale of shares, the company must be the individual’s personal company.
A company is considered a personal company if the shareholder:
Owns at least 5% of the ordinary share capital
Holds at least 5% of the voting rights
In addition, the shareholder must also be entitled to:
At least 5% of distributable profits, and
At least 5% of the assets available on a winding up or disposal
These conditions must be satisfied for the two years prior to the disposal.
3. Trading Company Requirement
The company must also be a trading company, or the holding company of a trading group.
This means the company’s activities must not include non-trading activities to a substantial extent. In practice, HMRC often interpret “substantial” as meaning more than around 20% of the company’s activities.
Examples of non-trading activities may include excessive investment activity or holding significant investment assets.
Lifetime Limit
BADR is subject to a lifetime limit of £1,000,000 of qualifying gains.
Once an individual has used this allowance, any further gains will be taxed at the standard CGT rates, even if the disposal would otherwise qualify.
Changes to Capital Gains Tax Rates
Recent government changes mean the tax benefit of BADR is gradually reducing.
The reduced CGT rate for qualifying business disposals has been increased in stages:
10% (previous rate)
14% from April 2025
18% from 6 April 2026
This means the tax payable on qualifying disposals will increase over time.
For individuals planning to sell a business or shares in a trading company, the timing of the disposal could therefore significantly affect the tax outcome. To be able to benefit from a rate of 14% the disposal must be made prior to 05 April 2026.
Claiming BADR
Business Asset Disposal Relief is not applied automatically.
A claim must be made through the individual’s Self Assessment tax return for the relevant tax year. Claims must normally be made by the first anniversary of 31 January following the tax year of disposal.
Failure to make a claim within the time limit may result in the relief being lost.
Why Reviewing Your Plans Matters
For many business owners, the sale of their business or company shares represents the largest financial transaction of their lifetime.
With the CGT rates on BADR increasing, it may be worthwhile for individuals who are considering a future disposal to review their position early.
Advance planning can help ensure:
The qualifying conditions are satisfied
The shareholding structure supports BADR eligibility
The timing of any disposal is considered in light of the changing tax rates
Final Thoughts
Business Asset Disposal Relief remains an important relief for entrepreneurs and shareholders selling qualifying business interests. However, with rates increasing from April 2025 and again in April 2026, the tax savings available are becoming smaller.
For business owners considering an exit in the coming years, reviewing the position sooner rather than later could make a meaningful difference to the overall tax outcome.
Disclaimer: This article is for general information only and does not constitute tax advice. Tax treatment depends on individual circumstances and may change.
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