Business Asset Disposal Relief (BADR): The £1m CGT Relief Explained (2025/26)

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Business Asset Disposal Relief rewards entrepreneurs selling their business with a reduced CGT rate. This guide explains who qualifies, the £1 million lifetime limit, the rising rate (14% now, 18% from April 2026), the two-year ownership conditions, and how to plan a sale to secure the relief — essential reading for any founder approaching an exit.

What is Business Asset Disposal Relief?

BADR reduces the CGT rate on qualifying disposals of business assets to a flat 14% for 2025/26, regardless of your income level, compared with the standard 18% or 24%. It applies to the sale of all or part of a trading business, shares in your personal trading company, or assets used in the business. Renamed from Entrepreneurs’ Relief, it’s designed to reward those who build and sell businesses.

The relief is significant: on a £1 million qualifying gain, 14% rather than 24% saves £100,000 in tax. This makes BADR one of the most valuable reliefs in the UK system for business owners, and a central consideration in planning any business sale or exit. Securing it can transform the after-tax proceeds of selling a company.

What is the £1 million lifetime limit?

BADR is capped at £1 million of qualifying gains over your entire lifetime, not per transaction. Once you’ve used the £1 million, further qualifying gains are taxed at the standard CGT rates. The limit was cut from £10 million in 2020, sharply reducing the relief available to those selling larger businesses, though it remains valuable for most owners.

Because it’s a lifetime allowance, the relief must be planned across multiple disposals if you sell more than one business or sell in stages. Spouses each have their own £1 million limit, so structuring ownership between partners can effectively double the relief available on a jointly owned business — a key planning point for couples running a company together.

What are the qualifying conditions?

To claim BADR on selling shares, you generally need to have held at least 5% of the ordinary share capital and voting rights, been entitled to 5% of profits or sale proceeds, and been an officer or employee of the company — all for at least two years before the disposal. The company must be a trading company, not an investment vehicle. For sole traders and partners, you must have owned the business for two years.

These conditions are strict and frequently trip up claimants. The two-year qualifying period means you can’t simply acquire shares shortly before a sale and claim relief. The trading-company requirement excludes businesses holding substantial investments. Checking that all conditions are met well before a planned sale is essential, because falling short by even a small margin loses the entire relief.

Why is the BADR rate rising?

The BADR rate has been increasing as the government scales back the relief. It rose to 14% for 2025/26 and is set to rise again to 18% from 6 April 2026, up from the original 10%. This phased increase means the timing of a business sale now materially affects the tax — selling before 6 April 2026 secures the 14% rate rather than 18%.

For owners planning an exit, this creates a genuine timing decision. Completing a qualifying sale in the 2025/26 tax year locks in the lower rate, potentially saving four percentage points on up to £1 million of gains. Anyone considering selling should factor the rate timetable into their plans, as deferring a sale past the deadline could cost tens of thousands in extra tax.

What is Investors’ Relief and how does it differ?

Investors’ Relief is a separate relief offering a reduced CGT rate on gains from disposing of qualifying shares in unlisted trading companies, aimed at external investors rather than working owners. It has its own conditions — including a minimum holding period and that the shares were newly issued — and its own lifetime limit, distinct from BADR.

It’s particularly relevant for those investing in private companies without being officers or employees, who therefore can’t claim BADR. Understanding which relief applies to your situation — BADR for working owners, Investors’ Relief for passive investors — ensures you claim the right one. The two can’t usually apply to the same shares, so identifying your status is the starting point.

How do I plan a business sale to secure BADR?

Securing BADR requires planning well ahead of a sale. Confirm the two-year ownership and officer/employee conditions are met, ensure the company qualifies as trading and isn’t holding excessive non-trading assets, structure share ownership between spouses to use both £1 million limits, and consider the rate timetable. Getting the structure right before negotiations begin is far easier than fixing it later.

Common pitfalls include holding too much cash or investment property in the company (jeopardising trading status), recent share issues that fail the two-year test, and leaving planning until a buyer appears. Because BADR can save £100,000 or more, professional advice in the run-up to a sale is almost always worthwhile, ensuring the relief is preserved and maximised across the owners.

A practical example: a founder’s exit

Imagine a founder selling their company shares for a £900,000 gain, having held 100% of a trading company as a director for ten years. The full gain qualifies for BADR within the £1 million lifetime limit. At 14%, the CGT is £126,000 (after the small annual exemption); at the standard 24% it would be £216,000 — a saving of around £90,000 from the relief.

If the founder’s spouse had owned shares too, meeting the conditions, the couple could have used two BADR limits, sheltering up to £2 million of gains at the reduced rate. The example shows both the value of BADR and why ownership structure and timing matter so much — decisions made years before a sale determine how much relief is available at exit.

How does BADR interact with the rest of your CGT position?

BADR gains use up your basic-rate band for the purpose of taxing other, non-qualifying gains in the same year, so the interaction needs care when you have multiple disposals. The annual exemption can be set against whichever gains are most beneficial, and capital losses can be allocated to maximise the overall benefit across qualifying and standard-rate gains.

For an owner selling both qualifying business assets and other investments in the same year, the order and allocation of allowances and losses affects the total tax. This is one reason a business sale benefits from professional CGT planning that looks at the whole year’s disposals together, ensuring BADR, the annual exemption and any losses are combined to the best effect.

What happens to BADR in a phased or deferred sale?

Many business sales involve deferred consideration, earn-outs or staged disposals, which complicate BADR. The relief generally applies at the point of disposal, but the treatment of amounts received later — and whether the qualifying conditions are met at the right time — needs careful handling. A poorly structured earn-out can jeopardise relief on part of the proceeds.

This is an area where timing and structure interact powerfully with the rising rate timetable. Where a sale spans the April 2026 rate change, or involves payments over several years, the BADR position on each element must be planned. For founders negotiating a complex exit, getting specialist advice on how the deal structure affects BADR can protect a substantial amount of relief.

Why early planning protects BADR

Because BADR’s conditions must be met for at least two years before a sale, the most valuable planning happens long before a buyer appears. Ensuring share structures qualify, that the company maintains trading status, that officer or employee conditions are satisfied, and that ownership is spread efficiently between spouses all take time to put in place — and can’t be retrofitted at the last minute.

Owners who plan their exit years ahead consistently secure more relief than those who react to an unexpected offer. With the rate rising and the lifetime limit already reduced, the value of getting the structure right in advance has grown. Treating BADR eligibility as something to maintain throughout the life of the business, not just at sale, is the surest way to maximise the relief.

Common BADR mistakes to avoid

The classic BADR pitfalls are failing the two-year qualifying period, the company losing trading status by holding too much cash or investments, not meeting the 5% shareholding and officer/employee conditions, overlooking the £1 million lifetime limit across disposals, and missing the rate-change timing. Any of these can reduce or eliminate the relief.

Avoiding them requires checking the conditions well ahead of a sale, keeping the company’s balance sheet clean of excess non-trading assets, structuring ownership between spouses, and factoring in the rising rate. Because BADR can save £100,000 or more, the cost of getting advice to protect it is trivial against the cost of losing it — making early, careful planning the decisive factor.

How does BADR fit into exit and succession planning?

BADR is one part of planning a business exit, alongside the choice of sale structure, succession to family or management, and the owner’s personal financial goals. Whether you sell to a third party, pass the business to children, or wind it down, the CGT treatment — and whether BADR applies — shapes the after-tax outcome and should be planned alongside the commercial decisions.

For many owners, the business is their largest asset and its sale funds their retirement, so maximising the after-tax proceeds matters enormously. Coordinating BADR with pension contributions, the timing of the sale, and the owner’s other income turns a one-off transaction into a planned event. This integrated view of exit, tax and personal finance is what separates a well-managed business sale from a rushed one.

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