Business Asset Disposal Relief (BADR) is the UK capital gains tax relief that lowers the tax on your gain when you sell all or part of a trading business, or shares in your own trading company, provided you have met its conditions for the two years before the sale. Qualifying gains are taxed at 18% for disposals on or after 6 April 2026 (14% from 6 April 2025 to 5 April 2026, and 10% on or before 5 April 2025), on up to £1 million of gains over your lifetime, against a higher rate of capital gains tax of 24%. For a higher-rate taxpayer that makes the relief worth at most £60,000 per person on a sale today: valuable, and worth checking early, but rarely a reason to restructure a deal on its own.
Last reviewed: October 2026. General information on UK tax rules for disposals from 6 April 2026, not tax advice. Sources: GOV.UK, HMRC's Capital Gains Manual (CG63950 onwards), helpsheet HS275 and the Taxation of Chargeable Gains Act 1992 (TCGA), sections 169H to 169S.
This guide is for owners of UK trading companies, and their co-founders, who expect to sell within the next year or two and want to know three things: what the relief is worth now, which tests they must pass, and what to check with an adviser while there is still time to act on the answer. It covers the business asset disposal relief rate by date of sale, the conditions, worked capital gains tax examples, how the relief interacts with earn-outs, employee ownership trusts and liquidations, and a pre-sale checklist.
BADR was called Entrepreneurs' Relief until Finance Act 2020 renamed it with effect from 6 April 2020. Its rate stayed at 10% from 23 June 2010 to 5 April 2025. The Autumn Budget 2024 raised the main capital gains tax (CGT) rates to 18% and 24% from 30 October 2024 and then raised the BADR rate in two steps: 14% for the 2025/26 tax year and 18% from 6 April 2026 (HMRC CG63955; TCGA s169N(3)).
| Date of disposal | BADR rate | Main CGT rate for a higher-rate taxpayer | Most BADR can save per person (on £1m) |
|---|---|---|---|
| 11 March 2020 to 29 October 2024 | 10% | 20% | £100,000 |
| 30 October 2024 to 5 April 2025 | 10% | 24% | £140,000 |
| 6 April 2025 to 5 April 2026 | 14% | 24% | £100,000 |
| From 6 April 2026 | 18% | 24% | £60,000 |
Two points follow from the table. First, from 6 April 2026 the BADR rate equals the 18% basic rate of CGT, so the relief only helps on gains that would otherwise be taxed at 24%. Gains that qualify for BADR use up any unused basic rate band first (GOV.UK, "Work out your tax"), so a seller with little other income saves slightly less than £60,000.
Second, the date that sets the rate is the date of disposal, and for a sale under contract that is when the contract becomes unconditional, not the day the money arrives (TCGA s28). Exchanging and completing on different days matters if they straddle 6 April.
Anti-forestalling rules in Finance Act 2025 stop sellers locking in an old rate through a contract signed early. Where a contract entered into before 6 April 2025 completes on or after 6 April 2026, the rate is the one for the completion date, unless the contract was commercial and had no tax-timing purpose (HMRC CG10250). Elections that trigger a gain on a share exchange are caught by a parallel rule (CG10251).
BADR applies only to a "material disposal of business assets" by an individual, or by the trustees of certain settlements; companies cannot claim it. Each route into the relief has a two-year test, which was one year for disposals before 6 April 2019 (HS275). The routes an owner is most likely to use are below.
| What you sell | Main conditions | Where the rule is |
|---|---|---|
| All or part of your business, as a sole trader or partner | You owned the business throughout the two years before the sale. It must be the whole business or an identifiable part of it, not just some assets of a continuing business | TCGA s169I(3); CG63975 |
| Assets of a business that has ceased | You owned the business for the two years up to cessation, the assets were in use when it ceased, and you sell within three years of cessation | s169I(4); CG63975 |
| Shares in your personal trading company | Throughout the two years before the sale: the company is your personal company, it is a trading company or the holding company of a trading group, and you are an officer or employee | s169I(6); CG63975 |
| Shares in a company that has stopped trading | The share conditions were met for the two years up to the date trading status ended, and you sell within three years of that date | s169I(7); CG63975 |
| Shares from an Enterprise Management Incentive (EMI) option | The option was granted at least two years before the sale; for those two years the company was trading and you were an officer or employee. No 5% test | s169I(7A) to (7R); CG64052 |
| An asset you own personally that the business uses, such as its premises (an "associated disposal") | Sold alongside a disposal of at least 5% of the company's shares or of the partnership, as part of withdrawing from the business; used in the business for the two years before the sale and owned for at least three years. Relief can be restricted if the business paid you rent | s169K, s169P; CG63996 |
For shares, the company must be your "personal company" throughout the two years. You must hold at least 5% of the ordinary share capital, and that holding must give you at least 5% of the voting rights. Since 29 October 2018 you also need an economic interest: either at least 5% of the profits available for distribution and at least 5% of the assets on a winding up, or at least 5% of the proceeds if the whole of the ordinary share capital were sold (TCGA s169S(3); HMRC CG64050).
The test is applied to share classes, not headcount. Ordinary share capital means all issued share capital except fixed-rate preference shares, measured by nominal value, so growth shares, alphabet shares and investor preferences can leave an owner with 5% of the votes but less than 5% of the economic rights. Shares held jointly are split by value: spouses holding 100% equally are each treated as holding 50% (CG64050).
If a new share issue, such as a funding round, takes you below 5%, you can elect to be treated as selling and reacquiring your shares just before the issue. That crystallises a gain that qualifies for BADR, and you can elect to defer paying the tax until you sell (TCGA s169SB to s169SH; GOV.UK).
You must be a director, company secretary or employee of the company, or of another company in its trading group, throughout the two years. HMRC states that "there are no specific requirements regarding either working hours or the level of remuneration" (CG64110). The test still catches owners out: an owner who steps down from the board a year before the sale, or a spouse who holds shares but has no role, fails it on their shares.
The company must be a trading company, or the holding company of a trading group, meaning its activities do not include "to a substantial extent" activities other than trading (TCGA s165A, applied by s169S(5)). HMRC weighs the indicators together: non-trading income, the asset base, expenses and staff time, and the company's history (CG64090).
HMRC's manual adds a working practice: where neither the level of non-trading income nor the asset base suggests the non-trading element exceeds 20%, a case is unlikely to warrant more detailed review (CG64090). Treat that 20% figure with care. It is HMRC practice rather than law, it is not a safe harbour, and the Upper Tribunal in Allam [2021] UKUT 0291 (TCC) looked at all the indicators, not one ratio. Surplus cash held well beyond working needs, an investment property and loans to connected parties are the usual reasons a company's status is questioned.
Every BADR condition looks back two years from the date of sale. A shareholding below 5% of the economic rights, a resignation from the board or a large cash balance cannot be put right in the month before completion. Each can usually be checked, and sometimes addressed with advice, a year or two ahead.
The examples below use 2026/27 rates and assume a seller who pays income tax at the higher rate, has no other gains in the year and has made no earlier BADR claims. The £3,000 annual exempt amount is set against the gains taxed at 24%, as GOV.UK allows. Costs of sale, which reduce the gain, are left out to keep the arithmetic visible.
| Step | Amount |
|---|---|
| Sale price for 100% of the shares | £3,200,000 |
| Less: base cost of the shares | (£200,000) |
| Gain | £3,000,000 |
| First £1,000,000 at the BADR rate of 18% | £180,000 |
| Remaining £2,000,000, less the £3,000 annual exempt amount, so £1,997,000 at 24% | £479,280 |
| Capital gains tax with BADR | £659,280 |
| Capital gains tax without BADR: £2,997,000 at 24% | £719,280 |
| Saving from BADR | £60,000 |
The effective rate on the £3.0m gain is 22.0% with the relief and 24.0% without it. Had the contract become unconditional between 6 April 2025 and 5 April 2026, the first £1m would have been taxed at 14%: £140,000 plus the same £479,280, a total of £619,280, which is £40,000 less than the same sale in 2026/27.
Two spouses each own 50% of a trading company and have both been directors for more than two years. They sell for £4,000,000. Their shares were subscribed at nominal value, so the base cost is negligible and is ignored here.
| Spouse A | Spouse B | Couple | |
|---|---|---|---|
| Gain | £2,000,000 | £2,000,000 | £4,000,000 |
| £1,000,000 at the BADR rate of 18% | £180,000 | £180,000 | £360,000 |
| £1,000,000 less £3,000 exempt amount, so £997,000 at 24% | £239,280 | £239,280 | £478,560 |
| Capital gains tax | £419,280 | £419,280 | £838,560 |
Spouses and civil partners are separate individuals: each has a £1m lifetime limit and an annual exempt amount, provided each meets the conditions personally (HMRC CG63970). If spouse B had held shares but no office or employment, B's whole gain after the exempt amount would be taxed at 24%, so B would pay £479,280 and the couple £898,560, which is £60,000 more. Had spouse A owned all the shares, the bill would be £180,000 plus £2,997,000 at 24% (£719,280), so £899,280: the qualifying couple pays £60,720 less, a second £1m band (£60,000) and a second exempt amount (£720).
A spouse who receives shares shortly before a sale does not inherit the giver's history. They must meet the personal company and officer or employee tests themselves for the two years before the sale, so any change to who holds shares, or who holds a role, needs to be made early and on advice.
The relief does not sit on its own. How the sale is structured and how the price is paid decide whether, when and on how much of the gain BADR can be claimed.
On a share sale you claim BADR personally on the gain on your shares. On an asset sale it is the company that sells and pays corporation tax on its gain, and BADR does not apply to that. You may be able to claim it later, when you extract the proceeds as capital distributions in a liquidation (see below), but the route has two layers of tax. We compare the two structures, including warranties and stamp duty, in share sale vs asset sale in the UK. Sole traders and partners sell the business assets themselves and can claim BADR on those gains, although goodwill sold to a close company in which they and connected persons hold 5% or more does not qualify (TCGA s169LA; HS275).
Deferred consideration whose amount is fixed at completion is brought into your gain at completion, even though it is paid later (TCGA s48), so BADR applies to it within the £1m limit. An earn-out whose amount depends on future performance is different. You are treated as receiving the cash plus a right to future payments, valued at completion and taxed as part of the sale. Each later payment is a disposal of that right, and HMRC states that it "will not be eligible for any relief which was due (or claimed) on the disposal of the original asset" (CG14970). We set out the wider tax and drafting points in how earn-outs work in a business sale.
An owner sells for £2.0m in cash plus an earn-out right valued at £500,000 at completion, with a nil base cost. The gain in the year of sale is £2.5m: £1m at 18% (£180,000) plus £1,497,000 at 24% after the exempt amount (£359,280), so £539,280, payable on £2.0m of cash. Two years later the earn-out pays £800,000. The gain on the right is £300,000; after that year's £3,000 exempt amount, £297,000 is taxed at 24%, which is £71,280, with no BADR.
When the price is paid in shares or loan notes of the buyer, the share exchange rules usually treat the new securities as the same asset as your old shares, so no gain arises at completion (TCGA s127 and s135). The difficulty is that by the time you sell the new shares, the buyer is unlikely to be your personal company. An election under TCGA s169Q disapplies that treatment so a gain arises at the exchange and BADR can be claimed on it; it covers all of the shares exchanged or none (CG64155). Where the buyer's vendor loan notes are qualifying corporate bonds (QCBs), a separate election under s169R brings the frozen gain into charge at the exchange for the same purpose (CG64161). Both elections share the BADR claim deadline.
For disposals to the trustees of an employee ownership trust (EOT) on or after 26 November 2025, 50% of the gain is chargeable and the other 50% is held over against the trustees' base cost. BADR and Investors' Relief are not available where EOT relief is claimed, so the chargeable half is taxed at the main rates (GOV.UK policy paper, Budget 2025; HMRC CG67801). On a £5m gain, a higher-rate taxpayer would pay £599,280 through an EOT against £1,139,280 on a trade sale with BADR, each after the annual exempt amount. The comparison leaves out timing: an EOT usually pays much of the price in instalments out of future profits, which affects when the cash arrives to meet the tax. We compare an EOT with a trade sale and other business exit strategies.
Investors' Relief is the external investor's equivalent. It applies to newly issued shares in an unlisted trading company, subscribed for on or after 17 March 2016 and held for at least three years, and it is not usually available if you or someone connected with you is an officer or employee. It has the same rates as BADR (14% for 2025/26 and 18% from 6 April 2026) and its own lifetime limit, reduced from £10m to £1m for disposals on or after 30 October 2024 (HMRC HS308). Most owner-managers will claim BADR rather than Investors' Relief.
An owner who closes a solvent company rather than selling it receives capital distributions in a members' voluntary liquidation (MVL). These are capital gains, and BADR can apply where the share conditions were met for the two years up to the end of trading and the distribution is made within three years of it (TCGA s169I(7)). A targeted anti-avoidance rule taxes a winding-up distribution as income instead where you held at least 5%, the company was a close company, you or a connected person carry on a similar trade or activity within two years of the distribution, and avoiding income tax was a main purpose (Income Tax (Trading and Other Income) Act 2005, s396B). Anyone planning to start a similar business after an MVL should take advice first.
BADR is not automatic. You claim it in your Self Assessment tax return, or on the HS275 claim form, by the first anniversary of the 31 January following the tax year of the sale (TCGA s169M(3)). For a sale between 6 April 2026 and 5 April 2027 that is 31 January 2029; for a 2025/26 sale it is 31 January 2028 (GOV.UK). A claim can be amended or revoked within that time, and earlier claims, including those made as Entrepreneurs' Relief, count towards the £1m lifetime limit (HS275; CG63970). There is no limit on how many claims you make within it. For a plain-English summary, see what is Business Asset Disposal Relief, and for the short definition, the BADR glossary entry.
Because the tests look back two years, the checks below are most useful 12 to 24 months before a sale, the window our 24-month exit planning guide works through. They are prompts for a conversation with your tax adviser, not steps to take on your own.
| Area | What to check with your adviser | Why it matters |
|---|---|---|
| Structure | Share sale or asset sale; whether a holding company sits above the trading company | Decides whether you claim on your shares or the company pays tax first |
| Shareholding | Each seller's ordinary shares, votes and economic rights against the 5% tests, for the full two years; the effect of any planned share issue | The personal company test; the dilution election |
| Role | Each selling shareholder, including a spouse, has held an office or employment for two years | The officer or employee test |
| Non-trading activity | Surplus cash, investment property, loans to connected parties | Trading status under CG64090 |
| Assets you own personally | Property or IP the company uses, and any rent it pays you | Associated disposal relief, and its restriction |
| Lifetime limit | Earlier BADR or Entrepreneurs' Relief claims | How much of the £1m remains |
| Form of the price | Cash, fixed deferred consideration, an earn-out, shares or loan notes | When the gain arises and whether BADR reaches it |
| Timing | When the contract will become unconditional, and in which tax year | The rate, and the claim deadline |
This checklist is general information on UK tax rules, not tax advice, and every point turns on your own facts. Speak to a tax adviser before you agree heads of terms, and before you change a shareholding, a role or the company's assets for tax reasons. Changes made mainly to obtain a relief can attract anti-avoidance rules.
The tax is calculated on the price, and the price is set by what a buyer believes about the business. The sale and purchase agreement will also carry tax warranties and a tax covenant, so a clean, well-documented company helps on both counts.
Opagio does not give tax advice or calculate your tax. We help owners build the evidence a buyer prices: Opagio Intangibles maps your intangible assets in the Opagio Value Drivers Register™ and restates your earnings in a Normalised P&L, so the value behind the price is documented before diligence starts. Start with the free Quick Assessment, or see how Opagio supports exit readiness.
For disposals on or after 6 April 2026 the rate is 18%, on up to £1m of qualifying gains over your lifetime. It was 14% for disposals from 6 April 2025 to 5 April 2026 and 10% before that. Gains above the limit are taxed at the main rates, 24% for a higher-rate taxpayer.
Yes. There is no limit on the number of claims, but the total of qualifying gains across all of them is capped at £1m per person. Earlier claims, including those made under the old name of Entrepreneurs' Relief, count towards the cap.
Yes, if they meet the conditions themselves. Each spouse or civil partner must hold at least 5% of the shares, votes and economic rights and be an officer or employee for the two years before the sale (HMRC CG63970).
They can, without the 5% test. The option must have been granted at least two years before the sale, and for those two years the company must have been trading and you must have been an officer or employee (CG64052).
It applies to the gain at completion, which includes the value placed on the earn-out right. Later gains on the right do not qualify (CG14970). Where the earn-out or price is paid in the buyer's shares or loan notes, elections under s169Q or s169R can bring the gain forward so the relief can be claimed.
In your Self Assessment tax return, or on the HS275 claim form, by the first anniversary of the 31 January after the tax year of the sale. For a sale in the 2026/27 tax year, that is 31 January 2029.
For the whole journey, start with how to sell a business, then how to value a business for the price the tax is calculated on, and share sale vs asset sale for the short answer on structure. When you are ready to build the evidence a buyer will test, see how Opagio supports exit readiness.
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