What Is Business Asset Disposal Relief?

Business Asset Disposal Relief (BADR) is the tax break most business owners care about most when they sell. It reduces the rate of Capital Gains Tax you pay on the profit from selling all or part of a qualifying business, or shares in your own trading company. Until April 2020 it was known as Entrepreneurs’ Relief, and many advisers and owners still use the old name. This is general information, not personal advice.

In 2026 the relief applies an 18% CGT rate to the first £1m of qualifying gains you make across your whole lifetime. Once you have used your £1m allowance, further gains are taxed at the standard rates of up to 24%. The relief has become less generous in recent years (the limit was £10m until 2020, and the rate has climbed from 10%) but it remains valuable, particularly for higher-rate taxpayers.

The qualifying conditions

BADR is not automatic: you must satisfy each condition, generally for at least two years up to the date of sale. For a sale of company shares, the main tests are:

• 1

  It’s a trading company

  The company must be a trading business (or the holding company of a trading group), not one whose activities are substantially investment, such as holding property or large cash reserves purely for return.

• 2

  You hold at least 5%

  You must own at least 5% of the ordinary share capital and voting rights, a “personal company”, and be entitled to at least 5% of the profits and assets on a sale.

• 3

  You’re an officer or employee

  You must be a director or employee of the company (or a group company) throughout the qualifying period. Purely passive investors do not qualify.

• 4

  You’ve held it long enough

  The conditions must be met for at least two years before the sale, so leaving it to the last minute can forfeit the relief entirely.

Sole traders and partners can also claim BADR when they sell all or a distinct part of their business, or qualifying assets used in it, subject to their own version of these tests. The two-year clock is the trap most people fall into, restructure or bring in a new shareholder too close to completion and the relief can be lost.

It is worth being clear about what BADR does not cover. It applies to the sale of shares in your personal trading company, to the disposal of the whole or a distinct part of a sole trader or partnership business, and to certain assets used in the business when you wind it down. It does not cover the sale of individual assets while you carry on trading as normal, nor gains on investment assets such as a buy-to-let property or a share portfolio held purely for return. The relief is squarely aimed at people genuinely exiting a business they have helped to build and run, not at passive investors.

What it’s worth in practice

Because the BADR rate is now 18%, the same as the basic-rate CGT rate, its advantage over standard CGT is the difference against the 24% higher rate. On a full £1m of qualifying gains, that gap is worth around £60,000 in tax saved. That is still a substantial sum, and for owners with gains at or below the £1m limit it can shelter the bulk of a modest business sale at the lower rate.

Planning to keep the relief

The recurring theme with BADR is that it rewards planning ahead. Ensuring the company is clearly trading, that each shareholder meets the 5% and officer tests, and that spouses or family members who genuinely work in the business hold their own shares in good time, can multiply the relief available across a family. Our guide to selling a business tax-efficiently works through how BADR fits alongside the wider sale.

Associated disposals can qualify in limited circumstances too, for example, where you personally own a property that the company trades from and you sell it as part of stepping back from the business. Those rules are narrow and easily failed, so they reward specialist input. Equally, where you sell only part of your shareholding, the qualifying tests must still be met on what you dispose of, which is why the precise detail of who owns what, and for how long, matters so much in the run-up to a deal.

BADR is also just one piece of the puzzle: the after-tax proceeds still need investing, and a business that once qualified for inheritance tax relief becomes cash in your estate once sold. The free Vetted Wealth service matches you with an independently vetted, FCA-regulated adviser through business exit and succession planning, including local support in Cornwall. This is information and a matching service, not personal advice; tax rules can change and depend on your circumstances.

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