Business Asset Disposal Relief (BADR), formerly known as Entrepreneurs' Relief, remains one of the most valuable tax reliefs available to UK business owners in 2026. If you are selling all or part of your business, this relief can reduce your Capital Gains Tax (CGT) rate to just 10% on qualifying gains, significantly lower than the standard rates of 18% or 24% for other assets.
This comprehensive guide covers the 2026 rules, eligibility criteria, the impact of recent budgets, and practical planning strategies to ensure you qualify for the £1 million lifetime allowance.
BADR acts as a specialized tax incentive designed to encourage entrepreneurship and business investment in the UK. When you sell (dispose of) qualifying business assets, the gain you make is normally subject to Capital Gains Tax. Without relief, higher-rate taxpayers would typically pay 24% on these gains (following the 2024 Budget increases for non-residential assets).
With a successful BADR claim, this rate is slashed to 10% on the first £1 million of lifetime gains. This means a potential tax saving of up to £140,000 compared to the standard higher rate.
Estimate your potential tax liability and savings.
*Calculation assumes full £1m allowance is available and compares against the 2026 standard asset rates.
To qualify for the 10% rate, specific conditions must be met for at least two years leading up to the date of disposal. These rules apply differently depending on whether you are selling shares in a company or disposing of assets as a sole trader/partner.
If you are selling shares, the company must be your "personal company." This is defined by four main tests:
Additionally, the company must be a trading company (or the holding company of a trading group). Companies with substantial investment activities (more than 20% of income/assets) may be disqualified.
For sole traders and partners, relief applies to the disposal of:
Crucially, you cannot claim BADR on the sale of goodwill if you transfer the business to a close company (a limited company you control) unless specific conditions are met.
The Autumn 2024 Budget introduced significant changes to the Capital Gains Tax landscape, which remain in full effect for 2026. The standard rates of CGT for assets other than residential property were aligned with residential rates, increasing from the old 10%/20% structure to 18% for basic rate taxpayers and 24% for higher rate taxpayers.
This increase has widened the gap between the relief rate and the standard rate. Previously, the saving for a higher rate taxpayer was 10% (20% vs 10%). Now, the saving is 14% (24% vs 10%). On a £1 million gain, this additional 4% spread represents an extra £40,000 in tax savings, making BADR planning more essential than ever.
| Taxpayer Status | Asset Type | Standard Rate | With BADR |
|---|---|---|---|
| Basic Rate | Business Assets / Shares | 18% | 10% |
| Higher / Additional | Business Assets / Shares | 24% | 10% |
| Any | Residential Property | 18% / 24% | N/A |
If you have utilized your own £1m lifetime allowance, or if your spouse pays tax at a lower rate (though BADR is a flat 10%), transferring shares to a spouse can be effective. However, the receiving spouse must meet all eligibility criteria in their own right—meaning they must be an employee/director and hold the shares for at least two years. Simply transferring shares immediately before a sale will not work for BADR purposes.
If there is uncertainty about future tax policy, some business owners choose to "crystallise" their gains. This might involve a disposal to a trust or a company buy-back of shares, though these are complex transactions requiring professional advice to ensure they don't trigger anti-avoidance rules.
If you do not meet the employee/officer requirement (for example, if you are a passive investor), you might qualify for Investors' Relief instead. This also offers a 10% rate on gains up to a separate £10 million lifetime limit (subject to legislative changes), provided the shares are newly issued ordinary shares held for at least three years.
The "Trading" Definition: One of the most common reasons for BADR denial is the company holding too much cash or investment property. HMRC generally considers a company "non-trading" if more than 20% of its activities (measured by income, assets, management time) relate to non-trading activities.
Dilution: If your company issues new shares to investors (e.g., in a funding round), your personal holding might drop below 5%. If this happens, you lose eligibility. However, you may be able to elect to "crystallise" the gain accrued up to that point without actually selling the shares, banking the relief on the value created so far.
The lifetime limit is £1 million. This is a cumulative limit for all qualifying disposals made during your lifetime. Once you have claimed relief on £1m of gains, any future gains will be taxed at the standard CGT rates.
No, the qualifying holding period remains 2 years. You must have met the eligibility criteria (e.g., 5% shareholding, employment) for the full 24 months prior to the date of disposal.
Generally, no. BADR is designed for trading businesses. Residential property letting is considered an investment activity. However, if the property was part of a Furnished Holiday Let (FHL) business, it might have qualified under previous rules, but strict criteria apply regarding the "trading" nature of the FHL.
You need to be an "officer" (director or company secretary) or an employee. There is no requirement for the employment to be full-time or for a specific salary level, but the employment relationship must be genuine.
The 2024 Budget increased the standard higher rate of CGT to 24%. This makes BADR more valuable. Without the relief, you would pay 24% tax on business sales; with it, you pay 10%. The "gap" or saving has increased.
If you close your company via a Members' Voluntary Liquidation (MVL), the distributions to shareholders are typically treated as capital gains. If you meet the BADR criteria, these gains are taxed at 10%. This is a common tax-efficient exit route for contractors and SME owners.
Yes. The government renamed Entrepreneurs' Relief to Business Asset Disposal Relief in the Finance Act 2020. The name changed, and the lifetime limit was reduced from £10m to £1m at that time, but the mechanics of the relief are largely the same.
In conclusion, Business Asset Disposal Relief remains a cornerstone of tax planning for UK business owners in 2026. While the £1m cap is lower than in the pre-2020 era, the relief still offers substantial protection against the higher 24% standard CGT rates. Early planning, ensuring all criteria are met well in advance of a sale, is critical to securing this benefit.