Business Asset Disposal Relief: eligibility, tax rules and CGT savings in 2026/27

Business Asset Disposal Relief (BADR) is one of the most valuable Capital Gains Tax (CGT) reliefs available to UK business owners. If you are planning to sell your company, dispose of shares in a trading business or retire from a partnership, understanding how the relief works can make a significant difference to the amount of tax you pay.

Although the relief was previously known as Entrepreneurs’ Relief, the qualifying rules remain complex and require careful planning before any transaction is completed. Missing a qualifying condition could mean paying the standard Capital Gains Tax rates instead of the reduced rate available under BADR. This 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 how Business Asset Disposal Relief works, who qualifies, the conditions that must be met, how Business Asset Disposal Relief tax is calculated and the practical steps entrepreneurs should take before selling their business.

What is Business Asset Disposal Relief?

Business Asset Disposal Relief is a Capital Gains Tax relief that allows qualifying business owners to pay a reduced rate of Capital Gains Tax when disposing of eligible business assets.

The relief applies to qualifying gains arising from:

• The sale of shares in a qualifying trading company.
• The disposal of a sole trader business.
• The disposal of an interest in a trading partnership.
• Certain associated business assets disposed of alongside a qualifying business.

BADR was previously called Entrepreneurs’ Relief before 6 April 2020. Although the name changed, its purpose remains the same: encouraging entrepreneurship by reducing the tax burden when business owners exit qualifying businesses.

The relief is not automatic. HMRC requires every qualifying condition to be satisfied before a claim can be made. If you’re only just thinking of selling your business, it’s worth understanding these conditions early, well before you start any formal discussions with a buyer.

How Business Asset Disposal Relief reduces Capital Gains Tax

The main advantage of Capital Gains Tax Business Asset Disposal Relief is that qualifying gains benefit from a reduced Capital Gains Tax rate.

For qualifying disposals made on or after 6 April 2026, the BADR rate is 18%. This is higher than an earlier period when qualifying business asset disposals were taxed at 10%, so the completion date matters when calculating the applicable rate.

Where the relief is unavailable, gains are taxed under the normal Capital Gains Tax rules, which can significantly increase the tax payable on a business sale.

For owner-managed businesses with substantial value, qualifying for BADR can therefore represent a considerable tax saving.

Business Asset Disposal Relief eligibility

Determining Business Asset Disposal Relief eligibility should be one of the first steps before agreeing to sell a business.

The qualifying conditions depend on the type of disposal, but HMRC generally expects all conditions to be satisfied immediately before completion.

Eligibility differs depending on whether you are:

• Selling shares in a company.
• Disposing of a sole trader business.
• Selling an interest in a partnership.
• Making an associated disposal of business assets.

Because different rules apply to each situation, reviewing eligibility well before negotiations begin helps reduce the risk of losing the relief unexpectedly.

Qualifying conditions for company shareholders

Company shareholders must normally satisfy several conditions before claiming Business Asset Disposal Relief.

In most cases:

• The company must be a trading company or the holding company of a trading group.
• You must be an employee or office holder of the company.
• You must normally own at least 5% of the company’s ordinary share capital.
• You must usually hold at least 5% of the voting rights.
• The qualifying conditions generally need to be satisfied continuously for at least two years before the disposal.

Depending on the company’s share structure, additional economic entitlement tests may also apply.

Changes to ownership shortly before completion should always be reviewed because relatively small alterations to shareholdings can affect Business Asset Disposal Relief eligibility.

Qualifying conditions for sole traders

Sole traders may also qualify for Business Asset Disposal Relief when disposing of all or part of their business.

Broadly, the business must have been owned and operated throughout the qualifying period before disposal.

The relief can apply where:

• The entire business is sold.
• A clearly identifiable part of the business is disposed of.
• Certain qualifying business assets are sold after the business has ceased, subject to the relevant conditions.

Each disposal should be considered individually because the availability of BADR depends on the circumstances surrounding the transaction.

Qualifying conditions for partnerships

Partners disposing of their interest in a trading partnership may also qualify for BADR.

Generally, the partnership must be carrying on a genuine trading business and the partner must satisfy the relevant ownership conditions before disposal.

Associated business assets sold alongside the partnership interest may also qualify where the statutory requirements are met.

Where partnership ownership has changed before retirement or sale, eligibility should be reviewed carefully to avoid unintentionally losing relief.

Associated disposals

Business Asset Disposal Relief may also apply to certain personally owned assets sold in connection with a qualifying business disposal.

Typical examples include:

• Commercial property personally owned by the shareholder.
• Land used by the trading business.
• Other qualifying assets used in the business.

Associated disposal rules are subject to additional conditions. The availability of relief may be restricted where market rent has been charged or ownership arrangements have changed during the qualifying period.

Business owners should therefore review associated assets before contracts are exchanged to ensure the proposed disposal remains as tax efficient as possible. Whether you’re selling all or part of your company, these associated assets should be reviewed alongside the main transaction rather than treated as a separate afterthought.

Business Asset Disposal Relief tax rates in 2026/27

For qualifying disposals made on or after 6 April 2026, the Business Asset Disposal Relief tax rate is 18%.

The reduced rate applies only to qualifying gains that fall within the individual’s available lifetime allowance. Any gains that exceed the lifetime limit, or fail to meet the qualifying conditions, are taxed under the standard Capital Gains Tax rules.

Understanding which part of a disposal qualifies before contracts are exchanged allows business owners to estimate their likely tax liability more accurately. Checking Business Asset Disposal Relief at the present rates before finalising any figures helps avoid relying on outdated percentages.

The £1 million lifetime limit

Business Asset Disposal Relief is subject to a lifetime limit of £1 million of qualifying gains.

The limit is cumulative, meaning every successful BADR claim made during your lifetime counts towards the same allowance.

For example, if you previously claimed relief on £400,000 of qualifying gains, only £600,000 of your lifetime allowance remains available for future qualifying disposals.

Business owners should therefore review:

• Previous Business Asset Disposal Relief claims.
• The remaining lifetime allowance available.
• Whether earlier disposals qualified under historic rules.

Once the £1 million limit has been fully used, any further qualifying disposals are taxed under the standard Capital Gains Tax regime.

When BADR is not available

Not every business disposal qualifies for BADR.

Relief may be unavailable where:

• The company is not a genuine trading company.
• The minimum ownership conditions have not been met.
• The seller is not an employee or office holder.
• The qualifying period has not been satisfied.
• The disposal relates to investment rather than trading assets.
• The £1 million lifetime allowance has already been used.

Companies carrying out substantial non-trading activities should also review their position carefully, as excessive investment activities or passive income may affect eligibility.

Business Asset Disposal Relief and investment companies

BADR is intended to support genuine trading businesses rather than passive investments.

Companies whose principal activities involve holding investments or generating rental income may not satisfy the trading company requirement.

This can be particularly relevant where a company owns:

• Investment properties.
• Large investment portfolios.
• Significant surplus cash not required for trading.
• Assets that are no longer used in the business.

Reviewing the company’s activities before marketing the business can help identify potential risks to Business Asset Disposal Relief eligibility.

How to claim Business Asset Disposal Relief

BADR is not applied automatically. A formal claim must normally be made to HMRC.

Most business owners claim the relief through their Self Assessment tax return by completing the Capital Gains Tax pages and providing details of the qualifying disposal.

The claim should normally include:

• The date of disposal.
• The qualifying gain.
• Allowable acquisition and disposal costs.
• Capital losses claimed.
• The amount of lifetime allowance already used.

Supporting documentation should be retained, including share certificates, shareholder agreements, company accounts, employment records and evidence that the qualifying conditions were met throughout the required ownership period.

Worked example: calculating Business Asset Disposal Relief

David owns all the shares in a successful engineering company that he established more than ten years ago.

During the 2026/27 tax year, he agrees to sell the company and makes a chargeable gain of £1.2 million after deducting allowable acquisition costs and professional fees.

David has not previously claimed BADR.

His position is broadly:

• Total qualifying gain: £1,200,000.
• The first £1 million qualifies for the reduced 18% BADR rate.
• The remaining gain is taxed using the standard Capital Gains Tax rules.

If David had already used part of his lifetime allowance on an earlier business sale, only the unused balance would qualify for the reduced rate.

This illustrates why reviewing previous BADR claims is an important part of pre-sale tax planning.

Common mistakes when claiming BADR

Many unsuccessful claims arise because the qualifying conditions were not reviewed before the sale.

Common mistakes include:

• Assuming Business Asset Disposal Relief applies automatically.
• Failing to satisfy the minimum shareholding conditions.
• Resigning as a director before completion.
• Ignoring the two-year qualifying period.
• Overlooking substantial non-trading activities.
• Forgetting previous BADR claims when calculating the lifetime allowance.
• Failing to keep records supporting the claim.

Most of these issues can be identified before negotiations begin, allowing time to address them before contracts are exchanged.

Planning before a business disposal

Business owners should review their tax position well before agreeing Heads of Terms.

A pre-sale review should include:

• Confirming the company remains a trading company.
• Checking share ownership and voting rights.
• Reviewing employment or office-holder status.
• Assessing previous BADR claims.
• Considering associated business assets.
• Reviewing the proposed transaction structure.
• Ensuring the qualifying period has been satisfied.

Early planning provides the greatest opportunity to preserve entitlement to relief and maximise the after-tax value of the disposal.

Key takeaways

Business Asset Disposal Relief can significantly reduce the Capital Gains Tax payable when qualifying business owners dispose of their business or shares. However, the relief is subject to detailed ownership, trading and employment conditions that should be reviewed before negotiations begin.

For qualifying disposals made during the 2026/27 tax year, the Business Asset Disposal Relief tax rate is 18%, subject to the £1 million lifetime limit.

Understanding Business Asset Disposal Relief eligibility, reviewing previous claims and confirming that the company satisfies the trading requirements before a sale helps reduce the risk of unexpected tax liabilities and ensures business owners can make informed decisions when planning their exit.

Case Study: Securing Business Asset Disposal Relief Before the Sale

A business owner visited our Farringdon office after receiving an offer to buy their company. While the commercial terms looked attractive, they were unsure whether they met the Business Asset Disposal Relief (BADR) qualifying conditions or how much Capital Gains Tax they might pay after the sale. They wanted to review their position before committing to the transaction.

We carried out a detailed review of the company’s trading activities, shareholding structure, voting rights, employment status and previous Business Asset Disposal Relief claims. We confirmed the client satisfied the qualifying conditions, explained how the £1 million lifetime limit applied to their disposal and compared the tax implications of different sale structures before contracts were exchanged. By identifying potential issues early, the client was able to proceed with confidence, maximise the available BADR relief and avoid unexpected Capital Gains Tax liabilities after completion.