Business Asset Disposal Relief (BADR) is a UK capital gains tax relief designed to reduce the tax rate paid by entrepreneurs and business partners when they dispose of qualifying business assets or shares.

As of 2026, the relief applies a reduced capital gains tax rate of 18% on qualifying lifetime gains up to a maximum limit of £1 million, providing substantial tax savings compared to standard higher capital gains tax rates.

Key Takeaways

• The Business Asset Disposal Relief capital gains tax rate for the 2026/27 tax year is set at 18% for qualifying disposals.
• The cumulative lifetime limit of qualifying capital gains on which a taxpayer can claim Business Asset Disposal Relief is capped at £1 million.
• To qualify for Business Asset Disposal Relief, the claimant must have owned the relevant business assets or personal company shares for at least two years.
• All claims for Business Asset Disposal Relief must be submitted to HMRC by the first anniversary of the 31 January following the tax year of disposal.

What is Business Asset Disposal Relief?

Business Asset Disposal Relief (BADR), formerly known as Entrepreneurs Relief, is a targeted UK capital gains tax (CGT) relief. Its core purpose is to incentivize entrepreneurship and investment by allowing individuals and certain trustees to pay a significantly reduced rate of tax when selling or winding down all or part of a qualifying business.

BADR functions under strict guidelines managed by HM Revenue and Customs (HMRC) to reward long-term business builders rather than short-term speculators.

It applies to individuals, such as sole traders, partners, and personal company shareholders, and specific settlement trustees, but it cannot be claimed by limited companies themselves.

How Does the Business Asset Disposal Relief Work?

Business Asset Disposal Relief (BADR) works by replacing standard higher-rate Capital Gains Tax with a lower 18% preferential rate on the net profits made from selling qualifying business assets. This mechanism applies directly through your self-assessment process up to a strict lifetime ceiling.

The Lifetime Allowance

The relief applies up to a £1 million cumulative lifetime limit of qualifying gains per individual. You can use this relief across multiple transactions over time, across separate tax years, until your overall limit is completely exhausted.

Spouses and civil partners are treated as separate individuals, meaning a married couple could potentially claim up to £2 million in lifetime relief if they both independently satisfy the qualifying criteria.

Handling the Excess

Any capital gains that exceed the £1 million limit are taxed at the standard prevailing CGT rates determined by your total taxable income and asset class. For individuals whose income and gains exceed the basic rate band, the remaining portion of the gain is subject to the standard 24% rate.

Understanding the 2026 Capital Gains Tax Divide

The 2026 Capital Gains Tax Divide is the structural difference between standard asset tax rates and BADR rates, where qualifying business assets are taxed at 18% while standard unlisted shares and non-residential property face a standard 24% higher-rate tax.

To understand the financial value of the relief, it is essential to look at how qualifying gains are treated compared to standard assets. The following table illustrates the tax rate differences for higher-rate taxpayers in the 2026/27 tax year:

Asset Type	Standard Higher CGT Rate	BADR Qualifying Rate	Lifetime Limit
Residential Property	24%	Not Eligible	N/A
Standard Shares / Assets	24%	Not Eligible	N/A
Qualifying Business Assets	24%	18%	£1 Million

What is the Current BADR Rate?

Following changes introduced in the Autumn Budget, the flat 10% rate historically associated with Entrepreneurs’ Relief has been replaced by a phased transition to higher rates.

The rate of relief has undergone a staged increase over the last two tax years. For disposals completed on or before 5 April 2025, the tax rate was indeed 10%. From 6 April 2025 until 5 April 2026, the transitional rate was set at 14%.

For the current 2026/27 tax year, which commenced on 6 April 2026, the business asset disposal relief tax rate has risen to 18%. This 18% rate is now the active rate for all qualifying disposals made on or after 6 April 2026.

The table below outlines this multi-year rate transition, helping business owners identify the exact tax liabilities associated with their timing of disposal:

Disposal Date Range	Active BADR Tax Rate	Maximum Tax Savings (on £1m Gain)
On or before 5 April 2025	10%	£140,000 (vs. previous 24% rate)
6 April 2025 to 5 April 2026	14%	£100,000 (vs. standard 24% rate)
On or after 6 April 2026	18%	£60,000 (vs. standard 24% rate)

What are the New Business Asset Disposal Relief Changes?

The new Business Asset Disposal Relief changes for the 2026/27 tax year include the final rate increase to 18%, fixed anti-forestalling restrictions on unconditional contracts, and a drop in the maximum tax saving to £60,000 under a frozen £1 million lifetime cap.

The primary changes introduced following the standard multi-year transition schedule relate to the rate adjustment and strict anti-avoidance parameters for 2026/27:

1. The Move to 18%: The baseline rate officially increased from 14% to 18% starting 6 April 2026.
2. Anti-Forestalling Restrictions: HMRC rules state that if an unconditional contract was signed before 6 April 2026 but completion occurs after, it will still face the higher 18% rate unless it can be explicitly proven the arrangement wasn’t designed solely to game the tax system.
3. Static Lifetime Cap: While standard CGT rates have shifted, the lifetime limit has remained fixed at £1 million, reducing the maximum potential tax saving under BADR to £60,000 (an 18% rate vs the standard 24% higher asset rate).

What Qualifies for Business Asset Disposal Relief?

To qualify for Business Asset Disposal Relief, a transaction must represent a material disposal of business assets, which means selling all or part of a business owned for at least two continuous years, or selling shares in a personal trading company where you hold a 5% minimum stake and work as an employee or director.

To successfully claim CGT business asset disposal relief, the disposal must meet strict statutory criteria set by HM Revenue and Customs (HMRC).

Sole Traders and Business Partners

If you operate as a sole trader or are a partner in a trading partnership, you can qualify for BADR when you sell or dispose of all or a distinct part of your business.

• The business must have been owned by you for a continuous period of at least two years leading up to the date of the sale.
• If you are closing your business rather than selling it as a going concern, the assets used for the business must be sold within three years of the date the business ceased trading.

Directors and Shareholders of a Personal Company

For those selling shares or securities in a limited company, the rules are more complex. To qualify for BADR on a share sale, the following conditions must be satisfied throughout a continuous two-year period ending with the date of the disposal:

1. Employment Status: You must be an officer (such as a director) or an employee of the company, or of another company within the same trading group. There is no minimum hour requirement for this role.
2. Trading Status: The company’s main activities must consist of trading rather than non-trading activities (such as investment or property rental).
3. The 5% Personal Company Test: You must hold at least 5% of the ordinary share capital and be able to exercise at least 5% of the voting rights in the company. Additionally, you must be beneficially entitled to at least 5% of either the profits available for distribution and assets on winding up, or 5% of the disposal proceeds if the company was sold.

Is Goodwill Eligible for Business Asset Disposal Relief?

When reviewing transactions, a common pattern is the transfer of a business from a sole trade or partnership into a new limited company (incorporation). While goodwill is generally a qualifying business asset, HMRC places strict limits on goodwill transfers.

Specifically, if you transfer your business to a close company (a company controlled by five or fewer participators) in which you hold a 5% or greater shareholding or voting interest, BADR is restricted on the gain relating to goodwill.

In these circumstances, the gain on goodwill is taxed at the standard Capital Gains Tax rates rather than the qualifying BADR rate.

How BADR Affects Capital Gains Tax?

BADR directly lowers your overall tax liability, softening the financial impact of standard Capital Gains Tax. Under the current tax structure, higher-rate taxpayers pay a flat 24% on standard shares and non-residential business assets.

Applying BADR cuts that baseline rate down to 18% for your first £1 million of gains.

Asset Category (Higher-Rate Taxpayer)	Standard CGT Rate	BADR Qualifying Rate	Max Lifetime Limit
Standard Shares / Non-Residential Assets	24%	Not Eligible	N/A
Qualifying Business Assets / Shares	24%	18%	£1 Million

How Do You Calculate Asset Disposal with BADR?

To calculate asset disposal with BADR, you separate your first £1 million of qualifying capital gains to apply the 18% tax rate, and then apply the standard 24% higher-rate CGT to any residual gains that exceed the lifetime limit.

Business Asset Disposal Relief Example

Consider the case of a company director who founded a UK-based software consultancy. After several years of successful trading, the director agrees to sell 100% of their shares in the personal company in November 2026 for a total capital gain of £1,200,000. The director has not made any prior BADR claims during their lifetime.

The calculation of the tax liability proceeds as follows:

1. Identify the Qualifying Gain: The total capital gain from the share sale is £1,200,000.
2. Apply the BADR Lifetime Limit: The first £1,000,000 of the gain qualifies for the reduced BADR rate.
3. Apply the BADR Tax Rate: Tax on the qualifying portion is calculated at 18%: BADR Tax = £1,000,000×18% = £180,000
4. Calculate the Excess Gain: The remaining gain above the lifetime limit is £200,000 (£1,200,000 – £1,000,000).
5. Apply Standard CGT Rate on Excess: This £200,000 excess is taxed at the standard higher-rate CGT for unlisted shares, which is 24%: Standard Tax on Excess = £ 200,000 × 24% = £48,000
6. Total Tax Liability: Combining both portions, the total tax due on the disposal is: Total Tax = £180,000 + £48,000 = £228,000

Without capital gains business asset disposal relief, the entire £1,200,000 gain would have been taxed at the standard 24% rate, resulting in a tax bill of £288,000. By utilizing BADR, the director achieves a direct tax saving of £60,000 (£288,000 – £228,000).

How to Claim Business Asset Disposal Relief?

You do not receive the relief automatically; it must be formally declared to HMRC.

1. Calculate Gains: Work out your total capital gains after subtracting allowable expenses, original acquisition costs, and your annual CGT exemption allowance.
2. Complete Your Self-Assessment: Fill out the Capital Gains summary section of your standard UK Self Assessment tax return, indicating the value of the assets qualifying for BADR.
3. Alternative Writing Route: If you are not registered to complete a standard tax return, you can submit your claim by writing a formal letter directly to HMRC detailing the transaction particulars.
4. Observe the Filing Deadline: Submit the claim on or before the first anniversary of the 31 January following the tax year in which the disposal occurred. For example, if you sell assets in the 2026/27 tax year, your absolute deadline to claim is 31 January 2029.

What Are the HMRC Business Asset Disposal Relief Anti-Avoidance Rules?

HMRC BADR anti-avoidance rules are statutory restrictions, including anti-forestalling contract rules and Targeted Anti-Avoidance Rules (TAAR) against phoenixing, designed to stop business owners from using artificial contract dates or liquidations to game the tax system.

Because of the significant tax savings associated with HMRC business asset disposal relief, HMRC closely monitors claims to prevent artificial or non-commercial tax avoidance.

Anti-Forestalling Rules on Unconditional Contracts

In ordinary CGT rules, the tax date of a disposal is the date an unconditional contract is entered into, rather than the completion date.

When the staged increases to BADR rates were announced, some owners attempted to lock in lower rates (such as the historical 10% or 14% rates) by signing unconditional contracts well in advance of completion.

HMRC’s anti-forestalling provisions override this timing rule. A contract entered into before a rate change is subject to the higher, newer rate upon completion unless the taxpayer can prove:

• The contract was not entered into with the primary purpose of obtaining a tax advantage through timing rules.
• If the contract involves connected parties, the transaction was entered into for wholly commercial reasons.

The Phoenixing Trap and Members Voluntary Liquidations

Another area of intense HMRC scrutiny involves the winding up of a solvent company via a Member’s Voluntary Liquidation (MVL).

Some business owners seek to distribute retained profits as capital gains, claiming BADR at 18%, and then immediately establish a new company doing the same work.

Under Targeted Anti-Avoidance Rules (TAAR), if you liquidate a company, claim BADR on the distribution, and continue a similar trade or activity through a new entity within two years, HMRC can recharacterise the distribution as dividend income.

This would subject the funds to income tax rates up to 35.75%, completely wiping out the CGT savings.

Step-by-Step Process for Executing a Valid Asset Disposal

The process for executing an asset disposal under BADR is a structured, chronological path requiring you to verify asset eligibility, track holding periods, compute net gains, check lifetime allowances, and file a formal self-assessment claim.

To ensure your exit strategy complies fully with HMRC, follow this clear timeline:

1. Assess Eligibility: Confirm that the qualifying ownership period of two years has been met.
2. Verify Asset Type: Ensure the assets or shares disposed of are legally eligible for BADR.
3. Calculate Gains: Work out the capital gains on the disposal after deducting allowable costs and deductions.
4. Confirm Lifetime Limit: Verify the remaining balance of your £1 million lifetime BADR allowance.
5. Complete Tax Return: Input the details of the disposal in the Capital Gains section of your Self-Assessment tax return.
6. Submit Claim: Submit the tax return or write to HMRC before the statutory deadline.

Conclusion

When reviewing decisions regarding corporate restructures or exit strategies, early planning is paramount to safeguarding your tax position. Business Asset Disposal Relief remains an invaluable mechanism for UK entrepreneurs, reducing the Capital Gains Tax on business exits from 24% to 18%.

However, with the increased rate of 18% now active in 2026 and HMRC stepping up scrutiny on qualifying conditions, ensuring compliance across share structures, trading statuses, and the two-year holding requirements is more critical than ever.

If you are planning to sell your business, transition ownership, or wind down operations, take time to review your eligibility and coordinate with a qualified tax professional to structure your disposal effectively.

Disclaimer: This article provides general information regarding Business Asset Disposal Relief and does not constitute formal tax or financial advice; consult a qualified UK tax professional before executing a business disposal.

FAQ

Is Business Asset Disposal Relief 10% or 14%?

Neither rate is the active standard for new disposals. The rate was 10% before April 2025 and 14% for the 2025/26 tax year. As of 6 April 2026, the rate is 18%.

Is BADR still 10%?

No, the 10% rate is no longer active. Following consecutive budget increases, the rate rose to 14% for the 2025/26 tax year and has reached 18% for the current 2026/27 tax year.

What is the current BADR rate?

The current rate for Business Asset Disposal Relief is 18% for all qualifying disposals made on or after 6 April 2026. This rate applies to gains within the £1 million lifetime limit.

What is the 3-year rule for BADR?

The three-year rule allows business owners to claim BADR on qualifying assets sold within three years of their business ceasing to trade, or within three years of their company ending its trading operations.

What is the BADR rate for 2026 27?

The BADR rate for the 2026/27 tax year is 18%. This rate was implemented on 6 April 2026 and remains active for the duration of the tax year.

Is goodwill eligible for Business Asset Disposal Relief?

Goodwill is eligible if sold as part of a third-party business sale. However, BADR is restricted if goodwill is transferred to a close company where the transferor holds a 5% or greater interest.

Who is eligible for entrepreneur relief?

Entrepreneurs’ Relief was renamed Business Asset Disposal Relief in 2020. Sole traders, partners, and personal company directors/employees meeting the qualifying 5% shareholding and two-year ownership rules remain eligible.