Business asset disposal relief (BADR, previously known as entrepreneurs’ relief) provides relief against capital gains tax on qualifying gains made by an individual on the disposal of all or part of the business, the assets in the business after it has stopped trading and shares in a personal trading company. HMRC Helpsheet 275 has more details on the relief.
Gains that qualify for BADR were taxed at 10% up to the maximum lifetime limit until 5 April 2025. For 2026/27, gains benefiting from BADR are taxed at 18%. This is the same as the rate charged where income and gains fall within the basic rate band. The lifetime limit is set at £1 million.
For those with income and gains in excess of the basic rate limit, realising a gain in 2026/27 can save tax of up to £60,000 (£1 million @ 6%), as the gain will be taxed at 18% rather than 24%.
The availability of the relief is contingent on certain conditions being met. The conditions must be met throughout the qualifying period of two years.
This is the period ending on the date the asset was sold or business ceased, if earlier.
Where shares are sold, the qualifying period is the two years ending on the date that the shares are sold, the date that the company ceases to be a member of a trading group, or the date on which it stops trading.
The conditions that must be met to access the relief depend on the type of disposal. If you dispose of all or part of your business, you must either own it directly or be a partner in the partnership that owns it.
If you dispose of assets following cessation, you must own the business directly or be a partner in the partnership that owns it. The assets must be disposed of within three years of the date on which the business ceases.
If the disposal is of shares or securities in your personal company, you must hold at least 5% of the ordinary share capital and that holding must give you at least 5% of voting rights in the company.
You must also be entitled to at least 5% of the company’s distributable profits and at least 5% of its assets available for distribution to equity holders in a winding-up or meet the alternative test of 5% of the sale proceeds if the company is sold. You must also be an employee or officer of the company or of a company in the same trading group.
The conditions must also be met throughout the qualifying two-year period.
Spouses and civil partners are each entitled to their own lifetime limit of £1 million for BADR, potentially doubling the tax savings on offer.
Both spouses or civil partners must meet the qualifying conditions.
The individual must also be an employee or officer of the company or of a company in the same trading group.
Shares can be transferred between spouses and civil partners on a no-gain no-loss basis. Transferring shares two years before the planned disposal date will ensure both parties meet the conditions and maximise relief. Shares can also be transferred to pass the gain from one party to another to maximise relief.
When planning an exit strategy, action should be taken to ensure that the qualifying conditions are met throughout the applicable qualifying period to ensure BADR remains available. Planning ahead is essential.
Claim Business Asset Disposal Relief
John has operated as a sole trader for many years and wishes to retire. He has planned ahead for the disposal, making sure that he has met the conditions necessary to qualify for business asset disposal relief. The business ceases on 31 May 2026 and he disposes of assets used in the business on 28 August 2026, realising a gain of £60,000.
He has other gains in the year which utilise his annual exemption and is a higher rate taxpayer.
He meets the conditions for business asset disposal relief. The gain is taxed at 18%, generating a capital gains tax bill of £10,800.
Had he not met the conditions for the relief, he would have had to pay capital gains tax of £14,400 on the gain (£60,000 @ 24%).
Claiming business asset disposal relief saves tax of £3,600 (£60,000 @ 6%) as the gain is taxed at 18% rather than at 24%.
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