Business Asset Disposal Relief tax rate: when does the 18% CGT rate apply in 2026/27?
The Business Asset Disposal Relief tax rate can reduce the Capital Gains Tax payable when an owner disposes of a qualifying business, shares in a trading company or an interest in a trading partnership. However, the relief is subject to detailed conditions and does not apply automatically to every business sale.
For qualifying disposals made on or after 6 April 2026, the BADR tax rate is 18%. This replaces the previous 14% rate that applied during 2025/26 and the historic 10% rate that applied to earlier disposals.
The reduced rate applies only to qualifying gains within the individual’s remaining £1 million lifetime limit. If the disposal fails the eligibility tests, or the lifetime limit has already been used, the gain is generally taxed under the standard Capital Gains Tax rules. That gain is charged within the wider Income Tax and CGT framework explained in our ultimate guide to personal tax in the UK.
This guide explains when Business Asset Disposal Relief 18% applies, which disposals may qualify, how the tax is calculated and what business owners should review before entering into a sale.
What is the Business Asset Disposal Relief tax rate?
Business Asset Disposal Relief, commonly known as BADR, provides a specific Capital Gains Tax rate for qualifying business disposals.
The applicable rates depend on the date of disposal:
| Qualifying disposal date | BADR rate |
|---|---|
| On or before 5 April 2025 | 10% |
| 6 April 2025 to 5 April 2026 | 14% |
| On or after 6 April 2026 | 18% |
For the 2026/27 tax year, qualifying gains are therefore charged at 18%. The rate applies regardless of whether the individual is otherwise a basic-rate, higher-rate or additional-rate taxpayer.
The date of disposal is important, particularly where contracts are agreed before 6 April 2026 but complete afterwards. Anti-forestalling rules may affect which BADR rate applies, so transactions spanning the rate-change date should be reviewed carefully.
What is Business Asset Disposal Relief?
Business Asset Disposal Relief Capital Gains Tax treatment is intended for individuals disposing of qualifying interests in genuine trading businesses.
The relief was known as Entrepreneurs’ Relief before 6 April 2020. Although the name changed, BADR continues to provide a lower CGT rate on qualifying business gains, subject to statutory eligibility conditions and the lifetime limit.
BADR may apply to:
- The sale of all or part of a sole trader business.
- The disposal of shares in a qualifying trading company.
- The disposal of an interest in a trading partnership.
- Certain personally owned business assets sold alongside a qualifying business disposal.
- Certain qualifying disposals following the cessation of a business.
The relief must be claimed. It is not automatically applied merely because the asset being sold is connected with a business. Anyone only thinking of selling their business should factor this claim requirement into early planning, well before formal discussions begin.
Which business disposals may qualify?
The nature of the disposal determines which BADR conditions must be satisfied.
Sale of a sole trader business
A sole trader may qualify when disposing of all or a distinct part of a trading business. The business must generally have been owned for at least two years before the disposal.
If the business has ceased trading, qualifying assets may still benefit from BADR where they are disposed of within the relevant period and the other conditions are met.
Sale of shares in a trading company
A shareholder may qualify when selling shares in their personal trading company or the holding company of a trading group.
The shareholder generally needs to satisfy the ownership, voting, economic entitlement and employment conditions throughout the required qualifying period.
Disposal of a partnership interest
A partner may qualify when disposing of all or part of an interest in a genuine trading partnership. The individual must normally have held the qualifying business interest for at least two years.
Associated business assets
BADR may sometimes extend to personally owned assets used by the business, such as commercial premises owned by a shareholder or partner.
Associated disposal rules are narrower and may restrict relief where the asset was not used wholly for business purposes, was sold separately from the business interest or was rented to the business at a market rate. These narrower rules are one of several areas where navigating Business Asset Disposal Relief as a UK entrepreneur benefits from specialist review before contracts are signed.
Business Asset Disposal Relief conditions for company shares
For a disposal of ordinary company shares, the individual will generally need to satisfy the following Capital Gains Tax Business Asset Disposal Relief conditions for at least two years before the disposal:
- The company must be a trading company or the holding company of a trading group.
- The seller must be an employee or office holder of the company or another company in the same trading group.
- The seller must normally hold at least 5% of the ordinary share capital.
- The seller must normally hold at least 5% of the voting rights.
- The seller must satisfy one of the relevant economic entitlement tests.
The economic tests broadly consider whether the shareholder is entitled to at least 5% of the company’s distributable profits and assets on a winding up, or at least 5% of the proceeds that would arise from a sale of the company.
Different rules may apply to qualifying Enterprise Management Incentive shares. In particular, the normal 5% ownership test may not apply, although the option, employment and two-year conditions must still be reviewed.
The trading company requirement
BADR is intended for genuine trading businesses rather than passive investment companies.
A company may have difficulty qualifying where its activities include substantial levels of:
- Investment property ownership.
- Passive rental income.
- Investment portfolios.
- Non-trading assets.
- Surplus cash with no identifiable trading purpose.
The presence of some non-trading activity does not necessarily prevent relief. However, the scale and nature of those activities must be assessed in the context of the company as a whole.
A pre-sale review is particularly important where the company has accumulated property, cash or investments that are not directly required for its trade.
The two-year qualifying period
Most BADR claims require the relevant conditions to be satisfied continuously for at least two years before disposal.
This period can affect:
- How long the business has been owned.
- How long the shares have been held.
- The shareholder’s employment or director status.
- The company’s trading status.
- The required voting and economic rights.
Changes shortly before a sale can therefore cause problems. Issuing new shares, altering share rights, resigning as a director or transferring shares may affect eligibility if the required conditions are no longer met. A full review of what’s involved in qualifying for Business Asset Disposal Relief can help identify these risks well before any changes are made.
The £1 million lifetime limit
The reduced Business Asset Disposal Relief tax rate applies to a maximum of £1 million of qualifying gains over an individual’s lifetime.
The limit is cumulative rather than being available separately for every disposal.
For example, where an individual previously claimed BADR on £350,000 of qualifying gains, only £650,000 of the current £1 million limit remains.
Once the lifetime limit has been fully used:
- No further gains can receive the BADR rate.
- Qualifying conditions may still technically be met.
- The excess gain is taxed at the standard applicable CGT rate.
Owners should check previous Entrepreneurs’ Relief and BADR claims because both count towards the lifetime limit.
How Business Asset Disposal Relief tax is calculated
Where all gains qualify, the broad calculation is:
- Calculate the gain on each qualifying business asset.
- Deduct qualifying losses relating to those disposals.
- Apply the available Annual Exempt Amount.
- Identify the gain falling within the remaining £1 million lifetime limit.
- Charge that qualifying amount at 18% for a 2026/27 disposal.
- Apply the standard CGT rate to any non-qualifying or excess gain.
Where only part of a transaction qualifies, the BADR and non-BADR gains must be identified separately.
Worked example of the BADR tax rate
Amir owns all the ordinary shares in a trading company and has worked as its managing director for eight years. He has not previously claimed Business Asset Disposal Relief.
During 2026/27, Amir sells his shares and makes a gain of £850,000 after deducting the original share cost and allowable professional fees.
He satisfies the trading company, ownership, voting, economic entitlement, employment and two-year qualifying conditions.
Assuming the gain remains £850,000 after available losses and exemptions, the BADR calculation is:
- Qualifying taxable gain: £850,000.
- Available lifetime limit: £1 million.
- Gain charged at the 18% BADR rate: £850,000.
- Indicative BADR liability: £153,000.
If Amir had already used £400,000 of his lifetime limit, only £600,000 of the current gain could receive the 18% rate. The balance would be taxed under the standard CGT rules.
Selling shares compared with selling business assets
The BADR outcome can depend heavily on the structure of the transaction.
Share sale
Where an individual shareholder sells qualifying company shares, the gain arises personally and may qualify for BADR.
Asset sale
Where the company sells its trade and assets, the company may pay Corporation Tax on gains or taxable profits. The shareholders may then face a separate personal tax charge when extracting the proceeds.
BADR does not normally apply to the company’s own Corporation Tax liability. It may become relevant later where the company is wound up and qualifying distributions are treated as capital, subject to the relevant conditions and anti-avoidance rules.
A buyer may prefer an asset purchase while a seller may prefer a share sale. This difference should be considered during negotiations because an identical headline price can produce a very different after-tax result.
How to claim the reduced rate
Business Asset Disposal Relief must normally be claimed through the Capital Gains Tax section of the individual’s Self Assessment tax return or using HMRC’s BADR helpsheet.
The claim should be supported by records showing:
- The disposal date and proceeds.
- The acquisition cost of the business or shares.
- Allowable professional and transaction costs.
- The company’s trading status.
- The seller’s employment or office-holder status.
- Shareholding and voting rights.
- Economic entitlement under the share rights.
- Previous BADR or Entrepreneurs’ Relief claims.
The claim deadline is later than the ordinary filing deadline, but waiting is rarely sensible. The relief should normally be considered when the disposal is first reported so the correct tax liability is calculated and paid.
Common mistakes with Business Asset Disposal Relief 18%
- Continuing to describe BADR as a 10% relief for a 2026/27 disposal.
- Assuming every sale of company shares qualifies.
- Ignoring the two-year qualifying period.
- Failing the 5% voting or economic entitlement tests.
- Resigning as a director or employee before completion.
- Overlooking substantial non-trading activities.
- Failing to check previous claims against the lifetime limit.
- Assuming an asset sale receives the same treatment as a share sale.
- Not making a formal claim to HMRC.
- Entering Heads of Terms before reviewing the tax structure.
What to review before disposing of business assets
Before agreeing a sale, business owners should confirm:
- What is being sold: shares, a business interest or individual assets.
- Whether the business satisfies the trading requirement.
- Whether the relevant two-year conditions have been met.
- Whether the shareholder satisfies all ownership and economic tests.
- How much of the £1 million lifetime limit remains.
- Whether associated property or other assets may qualify.
- How deferred consideration or earn-outs will be taxed.
- Whether the proposed completion date affects the applicable rate.
Reviewing these points before formal terms are agreed provides more opportunity to address problems than attempting to restructure the transaction immediately before completion.
Key takeaways
The Business Asset Disposal Relief tax rate for qualifying disposals made on or after 6 April 2026 is 18%. The historic 10% rate should not be used when estimating tax on a 2026/27 disposal.
The reduced BADR tax rate applies only where the relevant ownership, employment, trading and qualifying-period conditions are met. It is also limited to £1 million of qualifying lifetime gains.
Business owners should review their eligibility, previous claims and transaction structure before entering negotiations. Early planning helps establish whether Business Asset Disposal Relief Capital Gains Tax treatment is available and provides a clearer view of the proceeds that will remain after tax.
Case Study: Planning a Tax-Efficient Business Sale Before Completion
A telephone enquiry was received by our Fulham Broadway office from the owner of a long-established trading company who was preparing to sell their shares after receiving an offer from a potential buyer. While the commercial terms had largely been agreed, they were uncertain whether they met the qualifying conditions for Business Asset Disposal Relief (BADR) and wanted to understand how the proposed disposal would affect their Capital Gains Tax position before committing to the transaction.
Our advisers carried out a detailed review of the company’s trading activities, the client’s shareholding, voting rights, employment status and ownership history to confirm whether the Business Asset Disposal Relief conditions had been satisfied throughout the qualifying period. We also reviewed previous BADR claims, explained how the disposal would fit within the client’s overall tax position and highlighted the importance of timing before exchanging contracts. Alongside this review, we provided Capital Gains Tax planning, business exit planning, corporation tax advice, year-end accounts support, and personal tax planning to ensure every aspect of the transaction was considered. By identifying potential issues early and confirming the client’s position before the sale progressed, we helped them move forward with confidence, minimise uncertainty and complete the disposal knowing they had taken the appropriate steps to remain fully compliant with HMRC requirements.
