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Tax

What is Business Asset Disposal Relief?

Business Asset Disposal Relief (formerly Entrepreneurs' Relief) reduces Capital Gains Tax to 10% when you sell your business or shares.

Current Rate (2025/26)

10% CGT rate (vs normal 20%) on up to £1m lifetime gains

Example

Sell your company shares for £500k profit. With BADR: pay 10% = £50k tax. Without: pay 20% = £100k tax.

Key Dates

Must claim within 2 years of tax year end in which disposal occurred

How Business Asset Disposal Relief Works in Practice

Business Asset Disposal Relief (BADR), formerly known as Entrepreneurs' Relief, is a Capital Gains Tax (CGT) relief that reduces the rate of tax from the standard 20% (for higher and additional rate taxpayers) to 10% on qualifying gains up to a lifetime limit of £1 million. The relief was renamed in 2020 when the lifetime limit was reduced from £10 million to £1 million.

For company directors and shareholders, the most common use of BADR is when selling shares in your personal trading company. To qualify, you must have held at least 5% of the ordinary share capital and 5% of the voting rights for at least 2 years before the sale. You must also have been an officer or employee of the company during that 2-year period. If you meet these conditions, the gain on the share sale is taxed at 10% rather than 20%.

The £1 million lifetime limit applies cumulatively to all claims of BADR throughout your life, not per transaction. If you sell one business for a £600,000 gain and claim BADR, you only have £400,000 of lifetime allowance remaining for future disposals. Gains above the £1 million lifetime limit are taxed at the standard CGT rate.

BADR also applies to the sale of all or part of a sole trader or partnership business, and to the disposal of assets used in a business that has ceased within the previous 3 years. For EMI (Enterprise Management Incentive) share option holders, there are special rules that can allow BADR from the date the option was granted, which is a significant benefit for employees with share options in qualifying companies.

Step by Step

When you sell qualifying shares or business assets, the gain is calculated in the normal way: disposal proceeds minus the original cost (or base cost) and any allowable deductions. You then apply the annual exempt amount (£3,000 for 2025/26) if not used elsewhere. The qualifying gain is taxed at 10% instead of the standard CGT rate.

You claim BADR on your Self Assessment tax return for the tax year in which the disposal occurred. The claim must be made within 2 years of the 31 January following the tax year of disposal. For example, if you sell shares in October 2025 (2025/26 tax year), you must claim by 31 January 2029.

For a share sale, the qualifying conditions must be met throughout the 2-year period ending on the date of disposal (or the date the company ceased to be a trading company if earlier). The conditions are: you hold at least 5% of ordinary shares, you hold at least 5% of voting rights, you are an officer or employee of the company, and the company is a trading company (not mainly an investment company).

Practical Tips

  • If you are planning to sell your business, verify all qualifying conditions are met well in advance, particularly the 2-year holding period and the trading company requirement
  • Keep detailed records of when shares were acquired, any changes to shareholdings, and your employment or officer status throughout, as HMRC may request this evidence
  • If your company has significant non-trading activities (property investment, large cash reserves), take professional advice on whether it still qualifies as a trading company
  • Consider the lifetime limit when deciding whether to claim BADR on smaller disposals, especially if you plan a larger exit in the future

Common Mistakes to Avoid

  • Assuming BADR is automatic when it must be actively claimed on your Self Assessment return within the 2-year deadline
  • Not meeting the 2-year holding period because shares were reorganised, diluted below 5%, or the company changed its activities
  • Forgetting the lifetime limit is cumulative and using it on a smaller gain when a larger disposal is planned for the future
  • Not checking whether the company qualifies as a trading company, as significant investment activity (property, cash reserves) can disqualify it

Frequently Asked Questions

What is the lifetime limit for Business Asset Disposal Relief?

The lifetime limit is £1 million of qualifying gains. This is a cumulative total across all claims throughout your life. Gains above £1 million are taxed at the standard CGT rates. The limit was reduced from £10 million to £1 million from 11 March 2020.

Do I need to own 5% of the company to qualify?

Yes. You must hold at least 5% of the ordinary share capital and 5% of the voting rights for at least 2 years before the sale. You must also be an officer or employee of the company during that period. If your shareholding has been diluted below 5% through investment rounds, you may not qualify.

Can I claim BADR if I close my company instead of selling it?

Yes, but with different rules. If you wind up and dissolve the company, distributions over £25,000 are treated as capital distributions (not dividends) and can qualify for BADR. Distributions under £25,000 can use the simpler informal striking-off process and are treated as capital by default.

Is BADR still called Entrepreneurs' Relief?

The relief was renamed to Business Asset Disposal Relief from 6 April 2020, but the qualifying conditions are largely the same. Many accountants and directors still refer to it as Entrepreneurs' Relief. The main change alongside the renaming was the reduction of the lifetime limit from £10 million to £1 million.

How do I plan for BADR if I want to sell my company?

Ensure you have held at least 5% of shares and voting rights for 2 years, you have been an employee or officer throughout, and the company is a trading company. Review any investment activities that could jeopardise trading company status. Start planning at least 2 years before a potential sale.

Source: HMRC CG63950 - Capital Gains Manual: Business Asset Disposal Relief

Related Terms

Capital Gains Tax (CGT)

CGT is the tax you pay on profits from selling assets that have increased in value - like property, shares, or your business.

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