Business Asset Disposal Relief in 2026: What You Need to Know Before You Sell

If you’re thinking about selling your business, exiting a company, or disposing of shares, there’s one relief you need to understand before you do anything else – Business Asset Disposal Relief, or BADR.

BADR reduces the rate of Capital Gains Tax (CGT) you pay when you sell qualifying business assets. It used to charge just 10% on up to £1 million of lifetime gains, but the rate rose to 14% in April 2025, and from 6 April 2026, it increases again to 18%.

This guide explains how BADR works in 2026/27, who qualifies, what’s changed, and how to make sure you don’t lose the relief through poor planning.

How BADR Works

BADR applies to disposals of qualifying business assets by individuals. It doesn’t apply to companies – only to people. When you sell or dispose of an asset that qualifies, the gain is taxed at the BADR rate instead of the standard CGT rates.

The Rates

The BADR rate has moved three times in recent years:

• 10% for disposals before 6 April 2025
• 14% for disposals between 6 April 2025 and 5 April 2026
• 18% for disposals on or after 6 April 2026

For context, the standard CGT rates for 2026/27 are 18% for gains falling within your basic rate band and 24% for gains above it. So BADR now only offers a saving if your gains would otherwise be taxed at the higher 24% rate.

The Lifetime Limit

Each individual has a lifetime limit of £1 million in qualifying gains on which BADR can be claimed.

You can use it across multiple disposals and multiple businesses over your lifetime, but once you’ve claimed relief on £1 million of gains in total, any further gains are taxed at the standard CGT rates.

The limit used to be £10 million. It was reduced to £1 million in March 2020, and there’s been no indication of it changing again.

What Qualifies for BADR?

BADR covers several types of disposal, but the rules are different depending on what you’re selling. The main categories are shares in a trading company, all or part of a sole trader business, a partnership interest, and certain assets used by a business you’re withdrawing from.

Shares in a Trading Company

This is the most common scenario. To qualify, you need to meet all of the following conditions throughout a continuous two-year period ending on the date of disposal:

• You must be an employee or officer of the company
• The company must be a trading company (or the holding company of a trading group)
• You must hold at least 5% of the ordinary share capital and 5% of the voting rights
• You must also meet one of two “economic interest” tests – either being entitled to at least 5% of distributable profits and 5% of assets on a winding up, or being entitled to at least 5% of the proceeds if the entire ordinary share capital were sold

That last point trips people up. Holding 5% of shares and votes isn’t enough on its own. You also need to demonstrate a genuine 5% economic stake in the company’s value – and the way shares are structured (particularly if there are different classes, preference shares, or growth shares) can affect whether you pass that test.

Sole Traders and Partnerships

If you’re selling all or part of a business you’ve run as a sole trader or partner, you can claim BADR provided you’ve owned the business for at least two years before the disposal. The business must have been trading – property rental businesses don’t count, and neither do investment-focused activities.

Assets Used by Your Business

There are also rules covering personally owned assets that are used by your company or partnership – a common example being a property you own that the business operates from.

BADR may be available on the disposal of such an asset, but only if the disposal happens alongside a “material disposal” of your business interest (such as selling your shares) and you’re genuinely withdrawing from the business.

These “associated disposal” rules are complex, and the relief can be restricted if you’ve been charging rent for the asset’s use.

What the Rate Rise Means in Practice

The jump from 14% to 18% might not sound dramatic, but on larger disposals it adds up quickly.

Say you sell your shares in a trading company for £800,000. Your original cost was £50,000, giving you a gain of £750,000. After deducting the annual CGT exemption of £3,000, your taxable gain is £747,000.

At the 2025/26 BADR rate of 14%, your tax bill would have been £104,580. At the 2026/27 rate of 18%, it’s £134,460 – just under £30,000 more. Without BADR at all, assuming the higher 24% rate applied to the full gain, you’d pay £179,280.

BADR still saves you roughly £45,000 in this scenario. But it’s noticeably less generous than it was a year ago, and for anyone who completed a disposal before 6 April 2026, the 14% rate applies. Timing matters.

Common Mistakes That Cost People BADR

The eligibility conditions are strict and there’s very little room for error. HMRC won’t bend the rules because you were close to qualifying. Here are the situations that catch people out most often.

Falling Below the 5% Threshold

If your company issues new shares – to investors, new partners, or through an EMI scheme – and your holding drops below 5%, you lose the ability to claim BADR on a future disposal.

There is a mechanism to preserve the relief on gains accrued up to the point of dilution, but it requires you to make a formal election. If you don’t make that election, the relief is gone.

The Trading Company Test

HMRC looks at whether the company’s activities are “substantially” trading. If more than around 20% of the company’s income, assets, or activities are non-trading (investment property, for instance), BADR may be denied entirely.

This is assessed at the point of disposal, so a company that was trading throughout your ownership could still fail the test if it has accumulated non-trading assets by the time you sell.

Missing the Claim Deadline

BADR isn’t applied automatically. You have to claim it through the capital gains pages of your self-assessment tax return, and the deadline is the first anniversary of 31 January following the tax year of disposal. For a disposal made in 2026/27, that means you must claim by 31 January 2029.

Miss the deadline and you lose the relief – no exceptions.

The Anti-Avoidance Rules

If you sell your business, claim BADR, and then set up a new company doing substantially the same thing within two years, HMRC may treat the distribution as a dividend rather than a capital gain.

This is specifically designed to prevent people from “phoenixing” – closing one company to extract profits at CGT rates and immediately starting an identical business. The rules here are broad and HMRC takes them seriously.

Planning Ahead

With the BADR rate now at 18%, the gap between it and the standard 24% CGT rate is smaller than ever. That makes planning more important, not less – because losing the relief entirely means paying 24% instead of 18%.

There are a few things worth thinking about well ahead of any disposal:

• Review your shareholding structure regularly: Make sure you still meet the 5% tests across all the required measures – shares, votes, and economic interest. If a share issue is planned, consider whether it could dilute your position below the threshold and, if so, whether an election to preserve BADR should be made beforehand.
• Keep the company’s trading status clean: If non-trading activities are creeping up – perhaps the company has started accumulating investment property or holding large cash reserves – take advice on whether this could jeopardise the trading company test.
• Consider the timing: If you’re planning to sell in the next tax year, the 18% rate is locked in. But if disposals can be structured over multiple tax years, you may be able to make better use of the £3,000 annual CGT exemption and manage your income to keep more of the gain within lower tax bands.
• Think about spousal planning: Each spouse or civil partner has their own £1 million lifetime limit and their own annual exemption. Where both parties hold qualifying shares, there may be opportunities to double the available relief – but only if both individuals independently meet the eligibility conditions.

How Double Point Can Help

BADR remains one of the most valuable tax planning tools available to business owners, but the rules are unforgiving. One missed condition, one overlooked deadline, or one poorly timed share issue can cost you tens of thousands of pounds.

At Double Point, our chartered accountants work with business owners to review BADR eligibility, structure disposals efficiently, and make sure claims are filed correctly and on time.

Whether you’re planning a sale, considering a management buyout, or thinking about closing your company through a members’ voluntary liquidation, we can help you understand your position and make the most of the available reliefs.

Book a free consultation with us today and let’s make sure your disposal is structured to keep your tax bill as low as possible.