What Is Business Asset Disposal Relief?
Business Asset Disposal Relief (BADR) — formerly known as Entrepreneurs' Relief — is a UK Capital Gains Tax relief that reduces the CGT rate you pay when you sell a qualifying business or shares in your own company. Instead of paying the standard CGT rate of 18% (basic rate) or 24% (higher rate), qualifying gains attract a lower flat rate.
For the 2025/26 tax year, that BADR rate is 14%. From 6 April 2026, it increases to 18% — matching the standard basic-rate CGT rate and significantly narrowing the benefit. This change was announced by the Chancellor in the October 2024 Autumn Budget and represents the second step in a two-stage increase (BADR was 10% before April 2025).
The relief applies to a lifetime limit of £1,000,000 of qualifying gains per individual. Gains above that threshold — or gains that don't meet the qualifying conditions — are taxed at standard CGT rates. Use our free BADR calculator to see your exact CGT bill and how much you save by exiting before 6 April 2026.
The BADR Rate History: From 10% to 18%
BADR rates have changed significantly since the 2024 Autumn Budget:
| Period | BADR Rate | Standard CGT (basic) | Standard CGT (higher) |
|---|---|---|---|
| Before 6 April 2025 | 10% | 10% | 20% |
| 6 April 2025 – 5 April 2026 | 14% | 18% | 24% |
| 6 April 2026 onwards | 18% | 18% | 24% |
Note that the standard CGT rates (non-BADR) also increased in October 2024 — from 10%/20% to 18%/24% for non-residential assets. This means from April 2026, BADR gives no advantage over the basic-rate CGT band. The only remaining benefit of BADR for most directors will be protection against the higher 24% rate on gains above their remaining basic-rate band.
How Much Do You Save by Exiting Before 6 April 2026?
The difference between the 14% BADR rate and the 18% rate is 4 percentage points on your qualifying gain. The table below shows the cash saving at different gain levels:
| Qualifying Gain | CGT at 14% (before 6 Apr) | CGT at 18% (from 6 Apr) | Saving |
|---|---|---|---|
| £100,000 | £14,000 | £18,000 | £4,000 |
| £250,000 | £35,000 | £45,000 | £10,000 |
| £500,000 | £70,000 | £90,000 | £20,000 |
| £750,000 | £105,000 | £135,000 | £30,000 |
| £1,000,000 | £140,000 | £180,000 | £40,000 |
These figures assume the full gain is within the BADR lifetime limit. You also deduct the annual CGT exempt amount (£3,000 in 2026/27) before calculating the tax. Use the BADR calculator to model your specific proceeds, cost base, and income level.
BADR Qualifying Conditions
To claim BADR on the disposal of shares, all three conditions must have been met throughout the 2 years immediately before the disposal:
- Minimum 5% shareholding: You must hold at least 5% of the ordinary share capital and 5% of the voting rights. If dilution from funding rounds has taken you below 5%, BADR will not apply unless anti-dilution elections were made under the Finance Act 2019 rules.
- Officer or employee: You must be a director, company secretary, or employee of the company. A passive investor who holds shares but has no employment or directorial role does not qualify for BADR — they may qualify for Investors' Relief instead.
- Trading company: The company must be a genuine trading company (or the holding company of a trading group). HMRC defines this as a company whose activities do not consist of "substantially" (more than 20%) of investment, letting, or holding activities. Property investment companies and investment holding companies do not qualify.
For the disposal of assets used in an unincorporated business (sole traders, partnerships), BADR can apply to the business as a whole or to individual assets, again subject to a 2-year qualifying period.
Annual CGT Exemption and How It Affects Your Bill
Every UK individual has an annual Capital Gains Tax exempt amount — gains up to this threshold are tax-free. For 2026/27 that amount is £3,000 (reduced from £6,000 in 2023/24 and £12,300 in 2022/23 — it has been cut dramatically).
The £3,000 exemption is deducted from your total taxable gains before BADR is applied. On a £500,000 gain, the taxable gain is £497,000, and BADR applies to all £497,000 if you have unused lifetime allowance.
A spousal share transfer (see below) allows you to use two annual exemptions — £6,000 combined — further reducing the taxable gain before any CGT is applied.
CGT on Gains Above the BADR Lifetime Limit
The £1,000,000 BADR lifetime limit applies to the total gains claimed across an individual's entire lifetime — not just the current disposal. If you have claimed BADR on previous disposals, your remaining allowance is reduced accordingly.
Gains above the lifetime limit are taxed at standard CGT rates:
- 18% if the gain (added to your income) falls within the basic-rate band (up to £50,270)
- 24% if the gain (or part of it) falls above the higher-rate threshold
Whether standard-rate gains fall at 18% or 24% depends on your income in the same tax year. Income from salary and dividends uses up the basic-rate band first, and capital gains sit on top. A director drawing the optimal £12,570 salary with minimal dividends may retain significant basic-rate band for the gain, saving CGT compared to a higher-income director.
Key Tax Planning Strategies Before the April 2026 Deadline
1. Accelerate completion before 5 April 2026
The most direct strategy is simply completing the sale — exchange and completion — before 5 April 2026. The CGT rate is determined by the date of disposal, which for shares is typically the exchange of contracts. Heads of Terms and due diligence should start immediately if you want to close by the deadline.
For smaller deals, a simple share purchase agreement can move quickly. For larger transactions with extensive due diligence, M&A advisers typically need 3–6 months. With 6 weeks until the deadline as of the date of this guide, only deals already in advanced stages can realistically complete in time.
2. Members' Voluntary Liquidation (MVL)
An MVL is a formal winding-up of a solvent company that distributes its assets to shareholders as capital. This triggers CGT (with BADR applying if qualifying conditions are met) rather than income tax on the distribution. An MVL is generally cost-effective when reserves exceed approximately £35,000, and is the most tax-efficient way to close a company.
An insolvency practitioner must be appointed to conduct the MVL. The process typically takes 4–8 weeks from instruction, so instructing now could still allow completion before 6 April 2026 for many companies.
3. Spousal share transfer before disposal
Transferring shares to a spouse or civil partner before the sale (a "no gain no loss" transfer under TCGA 1992 s.58) allows the gain to be split between two individuals. Each person then uses their own:
- £3,000 annual CGT exemption (£6,000 combined)
- BADR lifetime allowance (£1,000,000 each, £2,000,000 combined)
- Basic-rate band for any non-BADR gains
The spouse must meet the BADR qualifying conditions independently — they need to be an officer or employee and hold 5%+ shares for 2 years. A transfer to a spouse who has never worked in the company will not unlock BADR for their portion of the gain.
4. Pension contributions before exit
Making employer pension contributions before the sale reduces the company's distributable value, but can also reduce the director's taxable income in the exit year — preserving basic-rate band for non-BADR gains to be taxed at 18% rather than 24%. Contributions must be "wholly and exclusively for the purposes of the trade" to be corporation-tax deductible.
5. EIS/SEIS reinvestment for CGT deferral
If you reinvest proceeds into an Enterprise Investment Scheme (EIS) qualifying company within 3 years of the disposal, you can defer the CGT on the gain until the EIS shares are eventually sold. This allows you to lock in the 14% BADR rate today while deferring when you pay it — giving you flexibility on timing. SEIS relief offers 50% income tax relief on investments up to £200,000 per year.
6. Ensure the 2-year qualifying period is satisfied
If you are planning a future exit and have not yet met the 2-year qualifying period, begin the clock now. If you became a director or took an equity stake less than 2 years ago, a short delay — until you hit the 2-year mark — may be worth significantly more in BADR savings than rushing to exit early.
What Happens After April 2026?
From 6 April 2026, BADR at 18% still provides a benefit over the higher-rate CGT of 24% for gains above the basic-rate band. For a director with significant other income (salary, dividends) who would otherwise pay 24% CGT on business gains, BADR still saves 6 percentage points — worth £60,000 on a £1,000,000 gain.
However, for basic-rate taxpayers with remaining basic-rate band at disposal, the BADR rate will equal the standard CGT rate, making the relief essentially worthless for that portion of the gain.
The practical conclusion: BADR remains valuable after April 2026 for higher-rate taxpayers, but loses its advantage for basic-rate taxpayers and becomes harder to justify engaging professional help to claim.
Common BADR Mistakes to Avoid
- Assuming you qualify without checking: HMRC has strict tests. Falling below 5% through dilution, changing your role from director to consultant, or having a company with significant investment activities can all disqualify you.
- Confusing BADR and Investors' Relief: Non-employee investors in unlisted trading companies claim Investors' Relief (not BADR), which has a separate £10m lifetime limit and currently also runs at 18%.
- Forgetting the lifetime limit is cumulative: If you have claimed BADR on a previous disposal, your remaining allowance is reduced. Many serial entrepreneurs are surprised to find their allowance is partially or fully used.
- Missing the anti-dilution election window: If share issuance dilutes you below 5%, you had a short window (before the dilutive event) to make a protective election. You cannot make this election retrospectively.
- Leaving it too late: Deals take time. If completion after 5 April 2026 is unavoidable, you can still plan other aspects (income minimisation, pension contributions, EIS reinvestment) to reduce the overall tax bill.
Calculate Your BADR CGT Now
With the deadline approaching, the best first step is to understand exactly how much tax you face and how much you save by exiting before 6 April 2026. Our free BADR calculator lets you enter your sale proceeds, original cost, lifetime allowance used, and planned income for the year — and instantly shows your CGT bill before and after the rate change, with the exact saving displayed.
For the full picture of tax-efficient strategies when winding down a limited company, read our guide on how to extract money from a limited company, or use the Company Extraction Calculator to compare 22 methods including salary, dividends, pension, and MVL.