Business Asset Disposal Relief Rate Rising to 18% from April 2026

The Relief That Keeps Shrinking

Business Asset Disposal Relief (BADR) — formerly known as Entrepreneurs' Relief — was once the most generous tax break available to business owners selling their companies. At its peak, it offered a 10% CGT rate on up to £10 million of lifetime gains.

Those days are long gone. The lifetime limit was cut to £1 million in March 2020. In the October 2024 Autumn Budget, the rate was increased from 10% to 14% for disposals from 6 April 2025. Now, from 6 April 2026, it rises again to 18%.

At 18%, BADR matches the lower rate of capital gains tax for basic-rate taxpayers. For higher-rate taxpayers (who pay CGT at 24%), the relief still provides a saving — but a dramatically smaller one than just two years ago.

The Rate Journey

Note that both BADR and the main CGT rate changed simultaneously. When the standard higher rate moved from 20% to 24% in October 2024, it actually kept the gap the same initially. But the second BADR increase to 18% narrows the gap significantly.

Who Qualifies for BADR

The qualifying conditions have not changed with the rate increase. To claim BADR, you must meet all of the following for at least two years before the disposal:

1. You are selling shares in a trading company (or the whole business if you are a sole trader)
2. You hold at least 5% of ordinary shares and 5% of voting rights
3. You are an officer or employee of the company
4. The company is a trading company (not primarily an investment company)

For most owner-directors of small limited companies, conditions 2-4 are straightforward. The two-year holding period is the one that catches people — if you incorporated recently or restructured your shareholding, check the dates carefully.

The Trading Company Requirement

HMRC defines a trading company as one whose activities do not include substantial non-trading activities. The general rule of thumb is that investment or property income should not exceed 20% of total activity (measured by income, assets, expenses, and management time).

If your company holds significant property or investment assets alongside its trade, BADR could be denied entirely. This is not a proportional restriction — if HMRC considers the non-trading activities substantial, you lose the entire relief, not just a portion of it.

The Lifetime Limit: £1 Million

The £1 million lifetime limit applies to total gains qualifying for BADR across your entire life — not per disposal and not per company. If you claimed £400,000 of BADR when selling a previous business, you have £600,000 of lifetime allowance remaining.

At the 18% rate, using the full £1 million lifetime limit saves you:

• £60,000 compared to the 24% higher rate (£240,000 vs £180,000)
• £0 compared to the 18% basic rate — there is no benefit if you are a basic-rate taxpayer

For comparison, when BADR was at 10%, the same £1 million of gains saved £100,000 against the then-20% rate.

Investors' Relief: Also Moving to 18%

Investors' Relief (IR) — available to external investors who hold qualifying shares for at least three years — is following the same trajectory. It moves from 14% to 18% on 6 April 2026, with a separate £1 million lifetime limit.

If you have both BADR and IR available (rare, but possible across different investments), you could shelter up to £2 million of gains at 18%.

Anti-Forestalling Rules

When the October 2024 Budget announced these changes, it included anti-forestalling provisions to prevent people from rushing to crystallise gains at the old rates. The key rules:

• Unconditional contracts entered into before 30 October 2024 are taxed at the rate in force when the contract was made, even if completion occurs after April 2025
• Conditional contracts are generally taxed at the rate in force when the condition is satisfied (i.e., when the disposal actually completes)
• Put and call options are assessed based on when the option is exercised, not when it was granted

There are no specific anti-forestalling rules for the April 2026 increase from 14% to 18% — that was already announced and legislated as a two-step process. This means if you can complete a disposal before 6 April 2026, the 14% rate applies.

Should You Sell Before April 2026?

This is the question every business owner considering an exit is asking. The maths is straightforward — the tax question is simple. The business question is not.

The Tax Saving From Acting Before April

On a £500,000 gain:

• Before April 2026 (14%): £70,000 tax
• After April 2026 (18%): £90,000 tax
• Saving from acting early: £20,000

On the full £1 million lifetime limit:

• Before April 2026: £140,000 tax
• After April 2026: £180,000 tax
• Saving from acting early: £40,000

When It Makes Sense to Accelerate

• You were already planning to sell in 2026 and the deal can realistically complete before 6 April
• The business is ready, a buyer is identified, and due diligence can be completed in time
• The £20,000-£40,000 saving is material relative to the deal size

When It Does Not Make Sense

• Rushing a sale to save tax almost always destroys more value than the tax saving
• If the business will be worth more in 12 months, the growth easily outweighs the 4% rate increase
• A poorly negotiated deal costs far more than the tax difference
• You have not yet met the two-year qualifying period

The general principle: never let the tax tail wag the commercial dog. A 4% rate increase on a £500,000 gain is £20,000. If rushing the sale means accepting a £50,000 lower price, you are worse off.

Planning for Disposals After April 2026

Use Your Annual CGT Exemption

The annual CGT exemption is £3,000 for 2026/27. If you are selling shares in stages (e.g., through a phased exit), each year's exemption shelters £3,000 of gains from tax entirely. This is modest but worth claiming.

Consider Holdover Relief for Gifts

If you are transferring shares to family members rather than selling to a third party, holdover relief may allow the gain to be deferred. The recipient takes on your base cost and will pay CGT when they eventually sell — potentially at a lower rate if they are a basic-rate taxpayer.

Enterprise Investment Scheme Deferral

Gains from any asset disposal can be deferred by investing in qualifying EIS shares within one year before or three years after the disposal. The gain is deferred until the EIS shares are sold. This does not eliminate the tax but can push it into a later year.

Pension Contributions to Manage Income

If the gain pushes your total income above £100,000, you lose the personal allowance — creating an effective 60%+ marginal rate. A pension contribution in the same tax year can reduce adjusted net income and preserve the allowance.

Key Dates

What This Means for Long-Term Planning

BADR at 18% is still a relief — it saves you 6% compared to the 24% higher rate. On the full £1 million lifetime limit, that is £60,000. It is worth claiming, and it is worth structuring your affairs to qualify.

But the days of BADR as a transformative tax break are over. At 10% on £10 million, it could save a business owner up to £1 million. At 18% on £1 million, the maximum saving is £60,000. That changes the calculus for exit planning fundamentally.

If you are building a business with an eventual exit in mind, factor the 18% rate into your projections. And keep your company's records clean — AccountsOS tracks your financial reports so you have clear documentation of trading activity if HMRC ever queries your BADR claim.

Frequently Asked Questions

Can I still claim BADR if I sell part of my shares?

Yes. BADR applies to disposals of shares in a qualifying company, whether you sell all or part of your holding. The key requirement is that you hold at least 5% of shares and voting rights for the two-year qualifying period before the disposal. Selling a portion that takes you below 5% is fine — the test is based on your holding before the sale.

What if my business has both trading and investment activities?

HMRC applies a "substantial" test — if non-trading activities are substantial (typically more than 20% by multiple measures including income, assets, and management time), the entire relief can be denied. If your company holds rental properties or significant investments alongside its trade, take professional advice on whether you qualify before relying on BADR.

Is it worth setting up a holding company structure before selling?

A holding company can provide flexibility for exits, but it does not change the BADR position for the individual selling shares. The qualifying conditions must be met at the holding company level, and the trading company test looks through to subsidiaries. Setting up a structure purely for tax purposes close to a sale carries significant risk of HMRC challenge.

What happens to unused BADR lifetime allowance?

Your £1 million lifetime limit carries forward indefinitely. If you claim £300,000 of BADR on selling one business, you have £700,000 remaining for future qualifying disposals. There is no annual use-it-or-lose-it element — but the rate at which the relief applies depends on the rate in force when you make the disposal, not when you first used the allowance.