Business Asset Disposal Relief – what has changed?
Business Asset Disposal Relief (“BADR”), formerly known as Entrepreneurs’ Relief, remains an important tax relief for business owners selling a qualifying business or shares in a qualifying trading company.
However, the relief is now less generous than it once was.
What is BADR?
BADR allows qualifying gains to be taxed at a lower rate of Capital Gains Tax (“CGT”).
For disposals made on or after 6 April 2026, qualifying gains are taxed at 18% under BADR. Gains that do not qualify for BADR will instead be taxed at the normal CGT rates of 18% or 24%, depending on the individual’s level of income in the tax year the gain arises.
The £1 million lifetime limit remains unchanged. This means that an individual can benefit from BADR on up to £1 million of qualifying gains over their lifetime, rather than £1 million on each business sale.
For an individual whose qualifying gains would otherwise be taxed at 24%, the maximum CGT saving attributable to the current BADR rate differential is £60,000 (£1 million × 6%).
Who can qualify?
BADR is not automatic. There are a number of conditions that must be met and the relief must be claimed.
For a sale of shares in a company, broadly:
- The company must be a trading company, or the holding company of a trading group.
- You must generally hold at least 5% of the ordinary share capital and voting rights, and satisfy the relevant economic interest test (broadly, entitlement to at least 5% of profits, capital on a winding up or disposal proceeds).
- You must have been an officer or employee of the company.
- For a share disposal, these conditions generally need to have been satisfied throughout the two-year period ending with the disposal.
There are different rules for unincorporated businesses and certain other types of disposal.
Particular care is needed where a company has different classes of shares, investment activities, group reorganisations or changes in ownership.
What does the change mean?
The BADR rate has increased in stages:
- 10% – disposals up to 5 April 2025
- 14% – disposals from 6 April 2025 to 5 April 2026
- 18% – disposals from 6 April 2026
Although BADR is less valuable than it used to be, it can still represent a significant tax saving.
For example, assuming the whole £1 million gain would otherwise be taxed at 24%, the difference between 18% under BADR and 24% at the normal rate is £60,000.
Don’t let the tax tail wag the dog
The increase in the BADR rate means that tax planning remains important when considering a business sale.
However, tax should not be the only consideration.
It would be a mistake to accept a lower sale price simply to secure a tax saving. The commercial terms of the transaction will often be much more significant than the tax difference.
The timing of a disposal can also be important. For CGT purposes, the disposal date is generally determined by the date an unconditional contract is entered into (or, for a conditional contract, when the relevant condition is satisfied), rather than simply when completion takes place or the consideration is received.
Specific anti-forestalling rules can, however, affect the BADR rate applicable to certain contracts entered into before 6 April 2026.
Planning ahead
BADR remains a valuable relief, but it should never be assumed that it will automatically apply to a business sale.
If you are considering selling your business, reviewing your BADR position at least two years before a sale is agreed can help identify any potential problems while there is still time to address them.
A little planning in advance could make a significant difference to the tax you ultimately pay.
Start with the right advice
With offices across the North West and as part of the Sumer Group, Cowgills combines local knowledge with access to a wider network of specialist expertise. Our tax and corporate finance teams can help you assess your BADR eligibility, review your ownership structure and understand how the timing and terms of a sale could affect what you take away, alongside your wider commercial and personal goals.
Get in touch with your local Cowgills team to discuss your exit plans and the steps you can take now to prepare.
