# What is Entrepreneurs' Relief (Business Asset Disposal Relief)?

Last updated: 19 October 2026
Category: Tax Relief

**Quick answer:** Business Asset Disposal Relief (formerly Entrepreneurs' Relief) offers an 18% Capital Gains Tax rate (from 6 April 2026) when selling your business or shares, up to a £1 million lifetime limit.

## Detailed explanation

**Business Asset Disposal Relief (BADR)**:

**What it is**:
Reduced CGT rate of 18% (vs 24% normal higher rate) when disposing of qualifying business assets on or after 6 April 2026. The BADR rate was 14% for disposals from 6 April 2025 to 5 April 2026, and 10% before that.

**Lifetime limit**: £1 million of gains

**Qualifying disposals**:
1. **Selling your business** (sole trader/partnership)
2. **Selling shares in a trading company** where you:
   - Own at least 5% of shares AND voting rights
   - Are an officer or employee
   - Have held shares for 2+ years
3. **Company liquidation** (MVL) meeting same criteria
4. **Associated disposal** (e.g., property used by your company)

**Example**:
- Sell company shares for £500,000
- Original cost: £100
- Gain: £499,900
- Tax with BADR: £89,982 (18%)
- Tax without BADR: £119,976 (24%)
- Saving: £29,994

**Conditions for shares**:
- Personal company (5% shares + votes)
- Trading company (or holding company of trading group)
- Been officer/employee for 2 years
- Held shares for 2 years

**What's not covered**:
- Investment companies
- Property investment companies
- Company with significant non-trading activities

**Claiming**:
- Claim on Self Assessment tax return
- Or in writing to HMRC
- Within 2 years of disposal

**Planning point**: Can use with MVL to extract cash at 18% rather than dividend rates up to 39.35%.

Source: HMRC Business Asset Disposal Relief Guidance

## Real-world examples

### Selling Your Consulting Business

Sarah, a sole trader consultant, sells her entire business (assets and goodwill) for £400,000 after operating for 7 years. Because she meets the criteria, she can apply Business Asset Disposal Relief and pay only 18% CGT on the gain instead of the usual higher rate.

### Share Sale in a Tech Startup

David owns 10% of a tech company where he also works as the CTO. After 5 years, he sells his shares for £800,000. Since he's held the shares for over 2 years, owns more than 5%, and is an officer, he qualifies for BADR and benefits from the lower 18% CGT rate.

### Company Liquidation After Retirement

After 20 years running a successful manufacturing business, John decides to retire and liquidate his company via a Members' Voluntary Liquidation (MVL). As a shareholder who meets the 5% ownership and officer/employee criteria, he can claim BADR on the distributions he receives from the liquidation, up to his remaining lifetime allowance.

## Common mistakes to avoid

- Forgetting that the 2-year qualifying period requires continuous ownership and officer/employee status right up to the date of disposal.
- Assuming that BADR applies automatically without confirming that the company is a 'trading company' and not primarily engaged in investment activities.
- Failing to consider the impact of BADR on other tax planning strategies, such as pension contributions, which could be more beneficial.
- Not accurately calculating the capital gain and incorrectly applying the £1 million lifetime limit, leading to potential penalties from HMRC.

## Frequently asked questions

### If I sell my business in stages, can I claim BADR on each sale?

Yes, you can claim BADR on multiple disposals as long as each disposal qualifies and you haven't exceeded your £1 million lifetime allowance. Each disposal is assessed separately, and it's crucial to maintain accurate records.

### What happens if I've already used some of my Entrepreneurs' Relief allowance before it became Business Asset Disposal Relief?

The £1 million lifetime limit is cumulative, so any Entrepreneurs' Relief claimed previously counts towards it. If you claimed £500,000 under Entrepreneurs' Relief, you'd only have £500,000 remaining for BADR.

### If I gift shares to my spouse, and they later sell them, who claims BADR?

If shares are gifted, the recipient (your spouse) would need to meet the BADR qualifying conditions *at the time of the sale* to claim the relief. They must own at least 5% of the shares, have voting rights, and be an officer/employee for at least two years prior to *their* disposal.

### How does BADR interact with other capital gains tax reliefs or allowances?

BADR is applied *before* deducting your annual Capital Gains Tax allowance (currently £3,000 for the 2026/27 tax year). The 18% rate applies to the gain after the allowance is deducted, up to the £1 million limit.

## Practical tips

- Start planning well in advance: Ensure you meet all the qualifying conditions for at least two years *before* you plan to sell or liquidate your business; consult with a tax advisor to confirm eligibility.
- Maintain detailed records: Keep meticulous documentation of share ownership, employment history, company activities, and any previous claims for Entrepreneurs' Relief to support your BADR claim.
- Consider staged disposals carefully: If selling in stages, plan the timing of each disposal to optimize your tax position, taking into account the £1 million lifetime allowance and potential changes in tax laws.
- Review your shareholder agreements: Ensure your shareholder agreements accurately reflect share ownership and voting rights, especially if you're approaching a potential sale or liquidation event, as these will be scrutinized by HMRC.

## Related questions

- [How do I close my limited company?](https://accounts-os.com/questions/how-do-i-close-my-limited-company)