Business Asset Disposal Relief (BADR) Explained (2026-27)

Business Asset Disposal Relief (BADR) — previously known as Entrepreneurs' Relief — is a valuable tax break that lets you pay a lower rate of Capital Gains Tax when you sell all or part of a qualifying business. For the 2026-27 tax year, BADR reduces your CGT rate to 14% on qualifying gains, compared to the standard CGT rates of 18% (basic rate) or 24% (higher/additional rate) on other assets. You can claim BADR on up to £1 million of lifetime gains, which can save you as much as £100,000 in tax over your lifetime if you use the full allowance. This guide explains who qualifies, how the relief works, and how to claim it.

What is Business Asset Disposal Relief?

BADR is designed to encourage entrepreneurship by reducing the tax burden when you sell a business you've built up over time. The relief recognises that selling a business is often a once-in-a-lifetime event — perhaps at retirement, or when moving on to a new venture — and shouldn't be taxed at the same rate as someone casually selling a second home.

The relief applies to gains made when you dispose of:

• Shares in your personal trading company (where you're an officer or employee and hold at least 5% of the shares and voting rights)
• A business you run as a sole trader or in partnership
• Assets you used in a business you've now closed down (in certain circumstances)

The key benefit is simple: instead of paying CGT at 18% or 24%, you pay just 14% on qualifying gains in 2026-27. This rate increased from 10% (which applied until April 2025) and is scheduled to rise further to align with standard CGT rates at 18% from April 2026, following announcements in the October 2024 Budget.

The lifetime limit

You can claim BADR on a maximum of £1 million of qualifying gains across your entire lifetime. Once you've used that allowance, any further business disposals are taxed at the normal CGT rates. The £1 million limit has remained unchanged since April 2020, when it was reduced from the previous £10 million cap.

Example: Marcus sells his limited company shares in 2026-27, making a gain of £800,000 after deducting his annual CGT exemption. He claims BADR and pays 14% tax = £112,000. He has £200,000 of his lifetime allowance remaining for future qualifying disposals.

Who qualifies for BADR?

The qualifying conditions depend on whether you're selling shares in a company or disposing of a sole-trader business.

Selling shares in your personal company

To claim BADR when selling shares, you must meet all these conditions for at least two years before the disposal:

1. 5% minimum shareholding: You owned at least 5% of the ordinary share capital in the company
2. 5% voting rights: Your shares gave you at least 5% of the voting rights
3. Officer or employee: You were a director or employee of the company (being a director is most common)
4. Trading company: The company must be a trading company or the holding company of a trading group — not an investment company that mainly holds property or investments
5. Two-year qualifying period: All the above conditions must have been met continuously for at least two years ending with the date of disposal (or, if the company ceased trading before you sold, the date it ceased trading)

The "trading company" requirement is crucial. HMRC applies this strictly. A company that mainly buys and holds property to let, or invests in stocks and shares, won't qualify. The company must exist to carry on a trade — making or selling goods, providing services, and so on [TCGA 1992 s. 169S].

Example: Priya has owned 8% of the shares in her software company since she co-founded it in 2022. She's been a director throughout. The company develops and sells accounting software (clearly a trading activity). She sells her shares in January 2027. She meets all the conditions and can claim BADR on her gain.

Selling a sole-trader or partnership business

If you're a sole trader or partner disposing of your business, you must:

1. Own the business for two years: You must have owned the business (or been a partner) for at least two years before disposal
2. Dispose of the whole business: You must sell the business as a going concern — selling the entire business to someone who will continue running it, not just selling off individual assets piecemeal
3. Trading business: Like the company rules, the business must be a trade, not an investment activity

You can also claim BADR on assets you continue to own after selling the business, provided you dispose of them within three years of ceasing to trade and they were used in the business.

Example: James has run a plumbing business as a sole trader since 2020. In March 2027, he sells the business to a former employee, including the customer list, van, tools, and goodwill. The buyer continues operating the plumbing business. James qualifies for BADR on the gain.

Associated disposals

There's a special rule for "associated disposals" — this covers situations where you personally own assets (like a building) that you've let to your company or partnership. When you dispose of your shares or partnership interest, you can also claim BADR on the disposal of these assets, provided certain conditions are met [TCGA 1992 s. 169K].

How much can you save?

The tax saving from BADR can be substantial. In 2026-27, the difference between the BADR rate (14%) and the higher CGT rate (24%) is 10 percentage points.

Example: Sarah sells her company shares, making a gain of £600,000 after using her annual CGT exemption (£3,000 in 2026-27).

• With BADR: £600,000 × 14% = £84,000 tax
• Without BADR: £600,000 × 24% = £144,000 tax (assuming she's a higher-rate taxpayer)
• Saving: £60,000

If Sarah had only basic-rate income, the comparison would be against 18% (standard CGT rate for basic-rate taxpayers), giving a saving of 4 percentage points or £24,000 on this disposal.

The changing rates

It's important to understand that BADR rates have changed significantly in recent years:

• Before April 2025: 10%
• 2025-26 tax year: 10% (transitional)
• 2026-27 tax year: 14% (current year)
• From April 2026 onwards: Scheduled to rise to 18%

This means if you're planning to sell a qualifying business, timing matters. The earlier you dispose, the lower your rate — though of course, tax shouldn't be the only factor in major business decisions.

What doesn't qualify

BADR has strict boundaries. Common situations that don't qualify include:

Investment companies: If your company mainly holds investments or rental property rather than trading, it won't qualify. HMRC looks at the company's activities as a whole. A company that does some trading but mainly invests won't pass the test.

Insufficient shareholding: Owning 4.9% won't qualify, even if you're a long-serving director. You need at least 5% of both shares and voting rights.

Short ownership period: If you've only been involved for 18 months when you sell, you don't meet the two-year requirement.

Selling assets piecemeal: A sole trader who closes their shop and sells the fixtures, stock, and goodwill separately over several months isn't disposing of the business as a going concern.

Selling to a connected party who doesn't continue the trade: If you sell your business to your spouse who immediately closes it down, HMRC may challenge whether this was a genuine disposal of a going concern.

How to claim BADR

BADR isn't automatic — you must actively claim it. The claim is made through your Self Assessment tax return for the year in which you made the disposal.

The claiming process

1. Complete SA108: This is the Capital Gains Tax summary pages of your Self Assessment return. You'll report the disposal and calculate your gain in the normal way.

2. Complete form HS275: This is the specific BADR claim form. It asks for details about your business, how long you owned it, and confirmation that you meet the qualifying conditions. You can find HS275 on GOV.UK.

3. Submit by the deadline: Your claim must be made by the first anniversary of the 31 January following the tax year of disposal. For a disposal in 2026-27 (6 April 2026 to 5 April 2027), you must claim by 31 January 2029.

Example: Tom sells his business on 15 June 2026 (in the 2026-27 tax year). He must submit his 2026-27 tax return and BADR claim by 31 January 2028 (the normal Self Assessment deadline). But he has until 31 January 2029 to amend his return and make or correct his BADR claim if needed.

Record-keeping

Keep comprehensive records to support your claim:

• Share certificates and company records showing your shareholding percentage
• Board minutes confirming your appointment as director
• Company accounts demonstrating trading activity
• Evidence of the two-year qualifying period
• Sale agreement and completion documents

HMRC can enquire into your claim, and you'll need these documents to demonstrate you met all the conditions.

Common mistakes

Assuming all business sales qualify: Many business owners assume BADR applies automatically to any business disposal. The qualifying conditions are strict, particularly around the trading requirement and minimum shareholding.

Forgetting to claim: BADR isn't applied automatically. If you don't complete form HS275 and make the claim on your tax return, you'll pay the higher CGT rate. HMRC won't remind you.

Miscounting the two-year period: The two years must end on the date of disposal (or cessation of trade). If the company stopped trading six months before you sold the shares, you need to have met all conditions for two years ending when it stopped trading, not when you sold.

Mixing up BADR and Gift Hold-Over Relief: These are different reliefs. BADR reduces the rate of tax you pay. Gift Hold-Over Relief (for gifts of business assets) defers the gain entirely. You can't claim both on the same disposal.

Not checking the trading status: A company that started as a trading business but gradually shifted to property investment may not qualify when you sell. HMRC looks at the position throughout the qualifying period and at disposal.

Selling shares to a family member at undervalue: If you sell shares to your adult children for less than market value, you're still treated as disposing at market value for CGT purposes, but HMRC may scrutinise whether the conditions are genuinely met, particularly if the business doesn't continue as a going concern.

Using up the allowance unnecessarily: Once you've claimed BADR on £1 million of gains, that's your lifetime limit. If you have a small qualifying disposal now but expect a much larger one in future, consider whether you want to use some of your allowance now or preserve it.

Planning points

If you're considering selling a business, several planning points can help maximise BADR:

Check qualifying status early: Don't wait until you're about to sell. Review whether you meet all the conditions at least two years before a planned disposal. If you're just under the 5% threshold, consider acquiring more shares.

Timing matters: With rates scheduled to increase, earlier disposals benefit from lower rates — though commercial considerations should drive timing, not just tax.

Clean up the company's activities: If your trading company has accumulated investments or rental properties, consider disposing of these before you sell your shares, so the company clearly qualifies as a trading company.

Consider EMI options: If you're an employee (not a director-shareholder yet), Enterprise Management Incentive share options can provide a route to BADR qualification, though this requires forward planning.

Spousal transfers: Transferring shares between spouses is usually tax-free. If one spouse doesn't meet the qualifying conditions but the other does, consider whether restructuring ownership makes sense (though both must meet the conditions independently to claim).

What to do next

If you're planning to sell a business or have already done so, getting specialist advice is worthwhile given the significant tax at stake.

For specific questions about your situation: Use the AI Tax chat at myaitax.info to get immediate guidance on whether you might qualify for BADR and what records you need.

For full support with your disposal: AI Accountant can handle the entire process — reviewing your qualifying status, calculating your gain, completing form HS275, and submitting your Self Assessment return with the BADR claim correctly made. This is particularly valuable for complex situations involving associated disposals, partnership interests, or companies with mixed trading and investment activities.

If you've already sold and didn't claim: Check whether you're still within the amendment window (31 January following the first anniversary of the tax year). If so, you can amend your return to claim BADR and request a refund of overpaid CGT.

Business Asset Disposal Relief can save tens of thousands of pounds when you sell a business you've built up over years. Understanding the rules, checking you qualify, and making the claim correctly ensures you don't pay more tax than necessary on what may be the most significant financial transaction of your life.