UK Business Asset Disposal Relief Guide (2026/27)

1. Overview: what BADR is

Business Asset Disposal Relief sits inside the Capital Gains Tax regime as a preferential rate for genuine business owners disposing of their business interest. Where the qualifying conditions are met, the gain is taxed at the BADR rate of 18% from 6 April 2026 rather than at the standard CGT main rates of 18% basic / 24% higher on non-residential assets. The cumulative ceiling is £1m of lifetime qualifying gains per individual; gains above that cap revert to the standard CGT rates.

The relief covers three broad routes. First, the disposal of a trading business carried on as a sole trader or in partnership, either as a whole or as an identifiable part. Second, the disposal of shares in your personal trading company (or the holding company of a trading group) where you meet the 5% shareholding test and the officer-or-employee test. Third, the post-cessation disposal of business assets within 3 years of ceasing to trade. A fourth route, the associated disposal, layers on top of the first two where personal assets used by the business are sold alongside the main disposal.

BADR replaced Entrepreneurs' Relief in name only on 6 April 2020. The rate was 10% from 2008 to 5 April 2025 and the lifetime cap was £10 million from 2011 until it was cut to £1 million on 11 March 2020. The Autumn Budget 2024 then raised the rate to 14% from 6 April 2025 and to 18% from 6 April 2026, while leaving the cap unchanged. The standard CGT main rates were simultaneously raised from 10% / 20% to 18% / 24% on non-residential assets from 30 October 2024, narrowing but not closing the BADR differential.

2. Rate transition: 10% to 14% to 18%

The BADR rate now follows a three-step schedule announced in the Autumn Budget 2024 and legislated in Finance Act 2025. The rate applicable to a disposal is determined by the date of disposal for CGT purposes - normally the date of an unconditional contract, not the date of completion. The dates are:

• Disposals up to and including 5 April 2025: 10%
• Disposals from 6 April 2025 to 5 April 2026: 14%
• Disposals from 6 April 2026 onwards: 18%

The lifetime cap of £1 million is unchanged across all three windows, and the qualifying conditions are unchanged. The Budget did not reopen the four-prong shareholding test or the 2-year holding rule. What did change, alongside the rate, was the anti-forestalling regime: contracts entered into before 30 October 2024 but completed after the rate-change date are caught and taxed at the new rate unless they meet the carve-outs (see section 10).

Worked rate-transition example. Consider a qualifying gain of £500,000 on a sale of shares in a personal trading company. All qualifying conditions are met. The CGT bill at each rate is:

• Pre 6 April 2025 (10% BADR): £50,000
• 2025/26 (14% BADR): £70,000
• 2026/27 onwards (18% BADR): £90,000
• Without BADR (24% main higher rate): £120,000

The 8-percentage-point spread between 10% and 18% is worth £40,000 on a £500,000 gain. Against the main-rate CGT comparator the remaining BADR saving in 2026/27 is £30,000 - smaller than it was, but still material. The relief is no longer the giveaway it was at 10%, but at 18% versus 24% it is still a one-third effective tax saving on the first £1m of qualifying lifetime gains.

The rate transition was designed in conjunction with the main-rate CGT increase from 20% to 24%. Holding BADR at 10% while the main rate moved to 24% would have widened the relief differential at exactly the moment HMRC has been narrowing it; raising BADR in step keeps the policy posture consistent. Future Budgets may revisit either rate, but the 18% rate for 2026/27 onward is on the statute book.

3. Qualifying disposals

BADR is available on three categories of disposal, with a fourth associated-disposal route layered on top. Sections 4 to 7 then go deeper on each test that applies. The summary here is the route map.

Route A: disposal of a business (sole trade or partnership). A disposal of the whole of a trading business, or of an identifiable part of one, that you have been carrying on as a sole trader or in partnership for at least 2 years up to the disposal date. "Identifiable part" is restrictive - it must be capable of being run as a free-standing business on its own, not just a profitable line of trade within a wider business. Selling the goodwill of your accountancy practice while continuing the rest of the practice does not qualify; selling a discrete branch office that you separately registered, staffed and banked may qualify.

Route B: disposal of shares in a personal trading company. A disposal of ordinary shares in a company that is your personal trading company (or the holding company of a trading group), where you have met the four-prong 5% shareholding test continuously for the 2 years ending on the disposal date, and you have been a director, officer or employee of the company (or any group company) throughout the same period. Convertible preference shares and deferred shares can fail the "ordinary share capital" definition depending on the detail of their rights, so the share class structure needs to be reviewed against the four prongs before relying on the relief.

Route C: post-cessation business assets. A disposal of assets that were used in a business that has now ceased to trade, where you held the assets at cessation, the business met the qualifying conditions for the 2 years up to cessation, and the disposal is within 3 years of cessation. Route C is the route most often used when a company is wound up via a Members' Voluntary Liquidation and the liquidator distributes the remaining cash in capital form within the 3-year window. You cannot start a new qualifying business using the same assets in the interim without risking the relief.

Route D: associated disposals. A disposal of a personal asset (typically the trading premises) that has been used in a Route A or Route B business, made at the same time as the Route A or Route B disposal. The asset must have been used in the business for at least 2 years before disposal and must not be subject to a continuing arrangement to use it after the disposal. Restrictions reduce the relief proportionately if any rent was charged during ownership. See section 7 for the detail.

What is not a qualifying disposal: the sale of a single asset out of an otherwise continuing business (Route A fails - it is not the disposal of an identifiable business); the sale of shares in a non-trading or investment company (Route B fails - the company is not trading); the sale of business assets more than 3 years after cessation (Route C fails - the window has closed); and the sale of an asset that has been used in your business but where you are not simultaneously disposing of the underlying business interest (Route D fails - no material disposal).

4. The two-year holding rule

Since 6 April 2019 the qualifying conditions must be met continuously throughout the 2-year period ending on the date of disposal. Before that date the holding period was one year. The change was made because the original one-year window was seen as generously short for a relief whose policy purpose is to reward genuine long-term business building rather than short-term gain-extraction structures.

The 2 years run backwards from the disposal date, which for CGT purposes is normally the date of an unconditional contract. For a conditional contract the disposal date is the date the contract becomes unconditional. The clock therefore stops on contract exchange, not completion - a six-month completion period does not extend the qualifying window.

For Route A (sole trade / partnership) the business itself must have been carried on for the 2 years. For Route B (company shares) every prong of the four-part shareholding test, the trading-status test, and the officer-or-employee test must be met for the whole 2-year period. For Route C (post-cessation) the 2-year clock ends on cessation rather than disposal, and a separate 3-year window then opens for the disposal itself.

There is no partial qualification. A 2-year holding minus one day produces zero relief. There is no taper, no carry-back of an earlier period, and no equitable doctrine that gives partial relief to someone who only just missed the threshold. This makes the disposal-date analysis one of the highest-stakes pieces of pre-sale tax planning - a few weeks' difference in contract date can be the difference between £90,000 of CGT and £120,000 on a £500,000 gain.

Continuity during the period. The relief is lost if any prong of the test fails at any point during the 2 years. A common example is a director who steps down from the board 18 months before disposal - the officer-or-employee prong fails because the test now needs continuity to the disposal date. A short gap can sometimes be bridged by re-appointment as a paid employee, but the reappointment must be genuine and substantive - HMRC will look through token directorships used to repair the prong.

Death and incapacity. If the business owner dies before the 2-year holding is complete, BADR is not available on the death itself (which is not a CGT disposal in any event) and the assets pass to the estate at market value with no CGT uplift. The estate's later sale of inherited shares is not a BADR disposal for the personal representatives because they cannot satisfy the officer-or-employee test. Specialist advice is essential where succession or incapacity planning intersects with BADR eligibility.

5. The 5% shareholding test

The four-prong shareholding test is the gateway for Route B disposals (shares in a personal trading company). It was introduced by Finance Act 2019 and has applied to disposals on or after 29 October 2018 (for the first two prongs) and 6 April 2019 (for all four). Before then a simpler two-prong test applied - 5% of ordinary share capital plus 5% of votes - which allowed share classes that gave the individual very little economic interest to still access the relief.

The four prongs (post-April 2019). To qualify, the individual must hold:

• At least 5% of the company's ordinary share capital by nominal value;
• At least 5% of the voting rights;
• Beneficial entitlement to at least 5% of the distributable profits available to equity holders; and
• Beneficial entitlement to at least 5% of the assets available for distribution to equity holders on a winding-up.

All four prongs must be met continuously for the 2 years before disposal. A holding that satisfies the votes-and-capital prongs but not the economic prongs (because the share class has a capped dividend right or no right to share in surplus assets) fails the test from April 2019 onwards even though it would have passed the older two-prong test.

The "alternative test" route. A shareholder who is diluted below the 5% threshold by a commercial fundraising can elect under section 169SC TCGA 1992 to crystallise the BADR position immediately before the dilution and defer the tax until eventual disposal. The election preserves the relief in respect of the pre-dilution gain even though the shareholder no longer meets the 5% test at later sale. This is a specific carve-out for growth-equity dilutions and is not available for reductions in shareholding caused by non-fundraising events.

The pre-2019 simpler test. For disposals before 6 April 2019, only the two capital-and-votes prongs applied. Many small-company shareholders relied on this looser test under Entrepreneurs' Relief. The post-2019 economic prongs now block structures that used non-standard share classes (alphabet shares, frozen-value preferred, non-participating preference) to give the individual formal voting control without real equity exposure. The economic prongs follow the legislative pattern of the substantial shareholding exemption test in Schedule 7AC TCGA 1992, importing similar concepts of "equity holder" and "distributable profits".

The officer-or-employee prong. Separate to the four-prong test, the shareholder must also be a director, other officer (eg company secretary), or employee of the company (or any company in the trading group) throughout the 2 years up to disposal. There is no minimum hours requirement and no minimum salary, so a non-executive director on a small fee qualifies. What does not qualify is a shareholder who has never had any employment or office with the company - the classic passive-investor case. For that profile, see Investors' Relief in section 8.

6. Trading-status test

For Route B (company shares) and the related Route C (post-cessation), the company must be a trading company (or the holding company of a trading group) throughout the 2-year qualifying period. Trading company is defined in section 165A TCGA 1992 and elaborated in HMRC's Capital Gains Manual at CG64050 and following. The core idea is that the company carries on commercial trading activities and does not have substantial non-trading activities.

The 20% test in practice. HMRC's published practice treats "substantial" as approximately 20%, measured across several factors including the proportion of non-trading income, the proportion of non-trading expenses, the proportion of assets used in non-trading activities, the time spent by management on non-trading activities, and the company's history. A company with a single year of elevated cash balances pending a planned trading acquisition will normally still be treated as trading; a company that has accumulated decades of retained profits as a passive investment portfolio will not.

Excluded activities. Certain activities are treated as non-trading even if they look commercial:

• Dealing in shares, securities, futures, options or other financial instruments on own account;
• Dealing in land or commodities (other than as a trade in commodities);
• Banking, insurance and other regulated financial services (some narrow carve-outs apply);
• Receiving royalties and licence income (other than from a trade);
• Letting of property to third parties for investment return (other than furnished accommodation in a hotel-style trade).

A company that has an excluded activity as more than an incidental part of its overall business loses trading status and BADR is unavailable on its shares. A common scenario: an owner-managed services company with a strong cash position that has bought a buy-to-let property portfolio "as a sideline". Once the property portfolio's value, income and time consumption tip past the 20% threshold the company is no longer trading and the shareholders have lost their BADR eligibility - in many cases without realising.

Holding-company test. A holding company is treated as trading if the group taken together is trading - non-trading subsidiaries are acceptable provided their activities, in aggregate, do not breach the 20% threshold at group level. The holding company itself does not need to carry on a trade; it can be a pure investment holding entity provided every meaningful subsidiary trades. The Capital Gains Manual at CG64080 sets out HMRC's analysis for group structures, including joint ventures and partnerships within the group.

Clearance. There is no statutory clearance for trading-company status. Where a transaction approaches the line, advisers commonly run an analysis by reference to the published 20% test and to recent case law (notably the line of cases following Farmer v IRC in the Inheritance Tax business-relief context, which uses a similar substantial-non-trading test). HMRC will not give a pre-transaction trading-status clearance under the non-statutory clearance regime, so the analysis is at the taxpayer's risk.

7. Associated disposals

Many business owners hold the trading premises personally rather than inside the company. When they eventually sell the business, they also sell the premises. The associated-disposal rules let that personal-property sale qualify for BADR provided it runs in parallel with the main business or share disposal.

The three conditions. An associated disposal qualifies for BADR if:

• The individual is making a "material disposal" of business interests under Route A or Route B at the same time;
• The asset being disposed of has been in use for the purposes of the business for at least 2 years up to disposal (the "use period"); and
• The asset has been owned by the individual throughout that 2-year period and the disposal is not subject to a continuing arrangement under which it will still be used for the business or by a connected party.

Where rent has been charged on the asset during its period of use by the business, the relief is restricted proportionately. The rule treats charged rent as evidence that the asset is being held as an investment rather than as part of the trade. Rent charged on or after 6 April 2008 reduces the BADR-qualifying proportion of the gain by reference to the period of rented use and the going market rent. Pre-2008 rent-charged periods are ignored. A premises let to the company at a peppercorn or zero rent for the whole ownership period attracts full BADR; a premises let at market rent for the whole period attracts none.

The "withdrawal from participation" test. The associated disposal must accompany a withdrawal from participation in the business. Selling the trading premises while continuing to hold all your shares and remain a full-time director does not count - there is no material disposal of business interest to attach to. Selling 100% of your shares plus the premises in the same transaction clearly counts. Selling, say, 30% of your shares while keeping 70% is a finely balanced area and depends on whether the 30% sale is itself a "material disposal" of business interest by reference to HMRC's published guidance.

Worked associated-disposal example. Sarah owns 100% of a trading limited company and personally owns the freehold of its trading premises. She has charged no rent throughout. She sells 100% of her shares for a £800,000 gain and at the same time sells the freehold to the purchaser for a £300,000 gain. Both gains qualify for BADR in 2026/27 (subject to the £1m lifetime cap, which is not breached here). Total CGT: £198,000 on a combined £1,100,000 gain. Had Sarah charged market rent on the premises for, say, half of her ownership period, roughly half of the premises gain would fall outside BADR and be taxed at 24% instead.

8. Investors' Relief alternative

Investors' Relief (IR) is a parallel CGT relief introduced by Finance Act 2016 for external investors who provide growth equity to unlisted UK trading companies. It targets the passive-investor profile that BADR excludes (because the officer-or-employee prong fails). The original policy goal was to mirror EIS-style risk-capital incentives outside the EIS rules.

The qualifying conditions. Investors' Relief applies to ordinary shares in an unlisted UK trading company (or holding company of a trading group) that are subscribed for in cash on or after 17 March 2016, held continuously for at least three years from the later of the subscription date and 6 April 2016, and held by an investor who is not (and has never been) an employee or paid officer of the issuing company. Unpaid non-executive directorships of up to 180 days are tolerated under a narrow carve-out; anything more substantial fails the test.

Rate and cap. Like BADR, the IR rate moved from 10% to 14% on 6 April 2025 and to 18% on 6 April 2026. The lifetime cap was cut from £10 million to £1 million from 30 October 2024, aligning the IR cap with the BADR cap. The two caps are separate - using your full BADR cap does not consume your IR cap and vice versa - so an active business owner who also makes external investments could in principle stack up to £2 million of lifetime relieved gains across both regimes at 18%.

In practice IR is used much less than BADR because most owner-investors fall on the BADR side of the employment line. Where IR matters is family investments in third-party private companies, angel portfolios, and external co-founders who funded a business but never joined it as an officer or employee. Specialist advice is essential where the individual's relationship with the company spans both "external investor" and "employee" status at different times, because a single past employment can disqualify the entire shareholding from IR.

9. Worked examples

The four scenarios below use the 18% BADR rate for 2026/27, the 24% higher-rate main CGT rate, the £1m lifetime cap and the £3,000 annual CGT allowance for 2026/27. All numbers ignore the annual exempt amount for simplicity (it makes a couple of hundred pounds of difference at these scales and would clutter the arithmetic).

9.1 Sole trader selling a £600,000 business

Mark has run an unincorporated trading business for 11 years and sells the whole business in May 2026 for a net gain of £600,000. He has used no BADR lifetime allowance previously. All qualifying conditions are met.

• Total gain: £600,000
• Within BADR cap: £600,000 (entire gain - well under £1m)
• BADR CGT at 18%: £108,000
• Hypothetical CGT without BADR at 24%: £144,000
• BADR saving: £36,000

Mark's effective rate on the disposal is 18%. Had he sold a year earlier under the 14% rate, his bill would have been £84,000 - £24,000 less. Two years earlier under the original 10% rate it would have been £60,000.

9.2 Director-shareholder selling a £1.4m company

Priya holds 100% of a personal trading company that she founded ten years ago. She is selling the entire shareholding in July 2026 for a net gain of £1,400,000. All four prongs of the shareholding test, the trading-status test and the officer-or-employee test are met throughout the qualifying period. She has not previously used any of her £1m BADR lifetime cap.

• Total gain: £1,400,000
• BADR-relieved portion (up to £1m cap): £1,000,000 at 18% = £180,000
• Excess above the cap: £400,000 at 24% = £96,000
• Total CGT: £276,000
• Blended effective rate: 19.71%

Priya's effective rate is 19.71%, reflecting the cap. If her spouse holds qualifying shares in the same company and meets every prong of the test in their own right (not merely as Priya's nominee), structured pre-sale gifting between spouses can in principle double the available BADR cap to £2m - but the spouse must independently satisfy the 2-year holding period at the 5% threshold, so the gift has to happen well before the sale and with genuine substance. HMRC scrutinises late-stage spousal share transfers closely.

9.3 Partnership disposal: £400,000 each

Three architects run a partnership and sell the practice in September 2026. Each partner's share of the net chargeable gain is £400,000. All three partners meet the 2-year holding rule. None has used any of their BADR lifetime allowance.

• Gain per partner: £400,000
• BADR CGT per partner at 18%: £72,000
• Hypothetical CGT per partner at 24%: £96,000
• BADR saving per partner: £24,000

Partnership disposals work partner-by-partner: each partner claims BADR on their individual share of the gain against their own £1m cap. A junior partner who only joined the partnership 18 months ago cannot claim - the 2-year holding rule applies to each partner separately. This is an important planning point in firms that frequently promote partners: the BADR clock starts on the date the individual became a partner, not on the firm's founding date.

9.4 Pre-2026 disposal timing

James has an unconditional offer to buy his shares in February 2026 for a £750,000 gain. He could complete in March 2026 (still 14% BADR) or in May 2026 (18% BADR). The buyer is indifferent. The commercial terms are otherwise identical.

• March 2026 completion at 14%: £105,000
• May 2026 completion at 18%: £135,000
• Timing cost of waiting: £30,000

Pulling the disposal forward by two months saves James £30,000. He should weigh that saving against the cost of expediting due diligence, any commercial adjustments the buyer would extract for a faster close, and the risk that an accelerated transaction misses something a more measured timeline would have caught. Anti-forestalling rules also apply to specific contract patterns (see section 10) so a contract hastily structured around the rate-change date can be caught by FA 2025 anti-forestalling provisions and taxed at the post-change rate regardless. A tax adviser should review the structure before signature.

10. Anti-avoidance and transitional rules

Finance Act 2025 included anti-forestalling provisions designed to stop taxpayers from accelerating disposals that would not otherwise have completed before the 6 April 2025 / 6 April 2026 rate steps. Two patterns are caught.

Pre-Budget unconditional contracts completed later. A contract entered into before 30 October 2024 (the Autumn Budget 2024 date) but where completion is delayed past the rate-change date is taxed at the new rate unless the contract was entered into for genuine commercial reasons and not part of an arrangement to obtain a tax advantage. The carve-out is narrow and HMRC's published guidance signals that most pre-Budget contracts with delayed completion will be challenged unless they have an arm's-length third party on the other side and a genuine commercial explanation for the deferred completion.

Conditional contracts. A contract becomes unconditional, for CGT disposal-date purposes, when the last condition is satisfied. A contract conditional on regulatory approval or satisfactory due diligence that was signed before the rate change but does not become unconditional until after the rate change crystallises the gain at the post-change rate. This is a significant change in practice for staged M&A processes where deals commonly exchange conditional in one tax year and complete in the next.

Connected-party transactions. Disposals to connected parties (spouses, civil partners, trustees of family trusts, family companies) are treated as taking place at market value regardless of the actual price. A connected-party disposal at undervalue before the rate change therefore crystallises the full market-value gain at the older lower rate, and the connected acquirer takes the asset with the higher post-disposal base cost. This is a legitimate planning route but the timing question remains the same: contract exchange must be before the rate-change date.

Transitional rules on share reorganisations. Where a share reorganisation crosses a rate-change date, the apportionment between pre-change and post-change rates follows the underlying disposal-date rules in TCGA 1992 sections 127-132. A share reorganisation is not itself a disposal; the disposal occurs when the replacement shares are eventually sold. Pre-2026 paper-for-paper exchanges therefore do not crystallise the 14% rate - the eventual cash sale of the new shares will be taxed at the rate then current, typically the post-April-2026 18% rate.

Earnouts and deferred consideration. Earnouts (right-to-receive-future-amount) are valued under section 138A TCGA 1992 and taxed at exchange, with the value of the right itself being the consideration. The eventual receipts unwind the value with adjustments. Where the original disposal date falls in the 14% window but the earnout pays out in the 18% window, the eventual receipts are still referable to the original disposal for rate purposes - the earnout does not migrate the gain to the later rate. Conversely, an attempt to structure consideration as a wholly later contingent payment in order to access a future lower rate is anti-forestalling territory.

The general anti-abuse rule (GAAR) sits over all of this. Arrangements whose main purpose is to obtain a BADR rate advantage and which are not reasonable commercial action can be challenged under the GAAR panel process regardless of whether the specific anti-forestalling provisions apply. Anyone considering transaction structuring around the rate steps should take advice from a Chartered Tax Adviser with M&A experience before committing to a particular path.

11. Frequently asked questions

What is Business Asset Disposal Relief in the UK?

Business Asset Disposal Relief (BADR) is a UK Capital Gains Tax relief that reduces the CGT rate on qualifying business disposals to a flat 18% from 6 April 2026, applied to lifetime cumulative gains up to £1 million. It was previously called Entrepreneurs' Relief until it was renamed on 6 April 2020. The relief is claimed on the Self Assessment return and is available to sole traders, partners and shareholders in their personal trading company who meet the qualifying conditions.

What is the BADR rate for 2026/27?

The BADR rate is 18% for any qualifying disposal completed on or after 6 April 2026. The rate moved from 10% to 14% on 6 April 2025 and then to 18% on 6 April 2026, as announced in the Autumn Budget 2024. The relief still applies to lifetime gains up to £1 million; gains above the cap are taxed at the main residential or non-residential CGT rates (currently up to 24% on non-residential assets for higher-rate taxpayers).

What is the BADR lifetime limit?

The BADR lifetime limit is £1 million per individual, cumulative across every qualifying disposal you ever make. It was £10 million from 2011 to March 2020, when it was cut to £1 million as part of the Entrepreneurs' Relief reforms. Once used in full, no further BADR is available even on a later genuine qualifying disposal - gains then fall to the standard CGT rates. The lifetime allowance is personal, not transferable between spouses, although both members of a couple can each use their own £1m cap on jointly held qualifying assets.

How do I qualify for BADR on company shares?

Since 6 April 2019 you must meet a four-prong test continuously for at least 2 years up to the disposal date: hold at least 5% of the ordinary share capital, control at least 5% of the voting rights, be entitled to at least 5% of the distributable profits and at least 5% of net assets on a winding-up, and be a director, officer or employee of the company throughout the period. The company itself must be a trading company (or the holding company of a trading group) for the same two years.

How long do I need to hold the asset before disposal?

Two years. The qualifying conditions must be met throughout the 2-year period ending on the date of disposal (or, for post-closure disposals, ending on the date the business ceased). The holding period was extended from one year to two years from 6 April 2019. There is no carry-back rule and no taper that lets you part-qualify - a 23-month holding produces zero BADR even if you meet every other condition.

Can a sole trader claim BADR?

Yes. A sole trader can claim BADR on the sale of the whole business or an identifiable part of the business, provided the business has been carried on for at least 2 years up to the disposal date. The relief applies to the gain on chargeable business assets (goodwill, land and buildings, plant and machinery), not on stock or trade debts. A sole trader selling individual assets one at a time while continuing the rest of the business does not qualify - the test is the disposal of a discrete business or part-business, not a piecemeal asset sale.

What is the 5% shareholding test for BADR?

For shares in a personal trading company, you must hold at least 5% of the ordinary share capital, control at least 5% of the votes, be beneficially entitled to at least 5% of distributable profits, and be beneficially entitled to at least 5% of the assets on a winding-up. The four prongs were added by Finance Act 2019 to block alphabet-share structures that gave token equity but no real economic interest. The test must be met continuously for the 2 years before disposal.

What counts as a trading company for BADR?

A trading company carries on commercial trading activities and has no more than incidental non-trading activity. HMRC applies a 20% test in practice - non-trading assets, income and activities must not exceed roughly 20% of the company's overall position on the relevant measures. Common disqualifiers are large cash balances accumulated from past profits (treated as investment if not earmarked for trading purposes), property let to third parties, and significant investment portfolios. Excluded activities include dealing in shares, securities, land or commodities, financial services and certain extractive industries.

Can I claim BADR after closing my business?

Yes, via the post-cessation route. If you sell or distribute business assets within 3 years of the business ceasing to trade, the disposal can still qualify for BADR provided the business met the conditions throughout the 2 years up to cessation, and provided you have not started a new qualifying business in the meantime that uses the same assets. This is the route most often used when a sole trader or company winds up via a Members' Voluntary Liquidation and the final distribution is paid out in capital form within the 3-year window.

What is an associated disposal for BADR?

An associated disposal is a sale of a personal asset that you have been using in the business or company, made at the same time as your sale of the underlying business interest or shares. The classic example is a director selling shares in their personal trading company and at the same time selling the trading premises they personally own and the company has been using under licence. The associated disposal must accompany a "material disposal" of the business or shares and must not be subject to a continuing arrangement to use the asset post-sale. Restrictions reduce the relief if rent was charged.

What is Investors' Relief and how does it differ from BADR?

Investors' Relief (IR) is a parallel CGT relief for external investors in unlisted trading companies. It applies to ordinary shares subscribed for in cash, held for at least three years from 6 April 2016, where the investor is not (and has never been) an employee or officer of the company. The IR rate moved from 10% to 14% on 6 April 2025 and to 18% on 6 April 2026, mirroring BADR. The lifetime cap was cut from £10 million to £1 million from 30 October 2024, aligning IR with BADR.

When is BADR claimed and when does the tax fall due?

BADR is claimed on the Self Assessment Capital Gains pages for the tax year in which the disposal completes. The claim deadline is the first anniversary of the 31 January after the tax year of disposal - so for a disposal in 2026/27, the BADR claim must be filed by 31 January 2029. The CGT liability itself, however, is due by 31 January following the tax year of disposal (so 31 January 2028 for a 2026/27 disposal) and may need to be reported earlier via the 60-day residential property route if any residential element is involved.

Is it worth delaying a disposal to use BADR before the rate rises?

Decisions on timing should be commercially driven, but the rate steps are material. A £500,000 qualifying gain completed before 6 April 2025 attracted £50,000 of CGT (10% BADR). The same gain completed between 6 April 2025 and 5 April 2026 attracts £70,000. From 6 April 2026 it attracts £90,000. That £40,000 gap between the pre-2025 and post-2026 rates is the explicit policy cost of staging the BADR rate up to 18% over two years. Forward-contracted disposals should be reviewed against the new rates with a qualified tax adviser, particularly where unconditional contracts straddle a rate-change date.

Does BADR apply to UK furnished holiday lets?

Not from 6 April 2025. Until then, qualifying Furnished Holiday Lettings (FHL) businesses could access BADR (and Rollover, Holdover and Gift Relief) under the FHL regime. The FHL tax regime was abolished from 6 April 2025, so disposals of former FHL businesses after that date are treated as ordinary property businesses and no longer qualify for BADR. Anti-forestalling rules in Finance Act 2025 also restrict the use of contracts entered before the announcement date to lock in BADR on what would otherwise be a non-qualifying disposal.

12. Related calculators and guides

• Capital Gains Tax calculator - model a CGT bill including BADR-eligible gains for 2026/27.
• Corporation Tax calculator - company-level tax bill before the eventual extraction or exit.
• Dividend tax calculator - the alternative extraction route to a capital exit.
• Director's Loan Account guide - clearing balances before an exit or MVL.
• Sole Trader vs Limited Company - the structure decision that shapes the exit route.
• Autumn Budget 2026 summary - the latest fiscal event and any further BADR changes.
• How UK tax works - the broader UK tax primer.
• UK tax relief guide - other reliefs that interact with business exits.
• SalaryTax methodology - how every figure on this guide is sourced and verified.