UK Business Asset Disposal Relief Guide (2026/27)

Business Asset Disposal Relief is the most valuable Capital Gains Tax relief available to UK business owners. It reduces the CGT rate on the sale of a qualifying trading business, qualifying shares in a personal trading company, or qualifying post-closure business assets, and it applies to a lifetime cumulative gain of up to £1 million per individual. The relief was renamed from Entrepreneurs' Relief on 6 April 2020 and its rate is now in the middle of a two-step transition: 10% before 6 April 2025, 14% for 2025/26, and 18% from 6 April 2026 onwards, as set out in the Autumn Budget 2024. This guide is the canonical 2026/27 reference - the rate transition, qualifying conditions, the 5% shareholding test, the trading-status test, associated disposals, Investors' Relief and worked examples for the four most common scenarios.

BADR is a YMYL topic. This guide describes the rules in general terms and is not a substitute for advice on your own facts. Anyone planning a disposal worth six figures or more should engage a Chartered Tax Adviser or accountant before contracts exchange - the qualifying conditions are detailed, the anti-forestalling rules bite hard on contrived timing, and missing a single condition of the personal-company test removes the relief entirely.

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 personal-company test or the 2-year holding rule. What did change, alongside the rate, was a set of anti-forestalling rules in Finance Act 2025 Schedule 2: where an unconditional contract made before a rate step is completed after it, the disposal is treated as made at completion, so the higher rate applies, unless the contract is an "excluded contract" (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 still removes 25% of the higher-rate bill 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 it has been your personal company (the 5% test in section 5) 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 personal-company test 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 and owned by you for at least 3 years before disposal (TCGA 1992 s.169K). 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 condition of the personal-company 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. Death is not a disposal for CGT, so no BADR claim arises on it and no CGT is charged on the gain built up to that date. The personal representatives acquire the assets at their market value at the date of death (TCGA 1992 s.62(1)), which rebases the gain. 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

For Route B disposals (shares), the company must be your "personal company" throughout the 2 years before the disposal. The definition is in TCGA 1992 s.169S(3), and the gov.uk eligibility page summarises it the same way. You must meet all three of:

• At least 5% of the company's ordinary share capital;
• By virtue of that holding, at least 5% of the voting rights; and
• Either or both of two economic tests: (i) beneficial entitlement to at least 5% of the profits available for distribution to equity holders and at least 5% of the assets available to equity holders on a winding-up, or (ii) beneficial entitlement to at least 5% of the proceeds if the whole of the ordinary share capital were sold.

The economic tests were added by Finance Act 2019 and apply to disposals on or after 29 October 2018 (FA 2019 Sch 16 para 4(4)). The same Schedule extended the qualifying period from one year to 2 years for disposals on or after 6 April 2019. A holding that passes the capital and votes tests but fails both economic tests (for example a share class with a capped dividend right and no share of surplus assets or sale proceeds) does not qualify.

Dilution by a new share issue. 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 earlier, simpler test. For disposals before 29 October 2018, only the capital and votes tests applied. The economic tests now block share classes that give formal voting rights without a real economic interest. The "equity holder" and "profits or assets available for distribution" concepts are imported from the group relief rules in CTA 2010 Part 5 Chapter 6 (s.169S(3D)).

The officer-or-employee prong. Separate from the personal-company 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 TCGA 1992 s.165A(3): a company carrying on trading activities whose activities do not include "to a substantial extent" activities other than trading activities.

What "substantial" means in practice. HMRC's Capital Gains Manual at CG64090 lists the indicators it weighs: income from non-trading activities, the company's asset base, the expenses incurred and time spent by officers and employees on each activity, and the company's history. It says these are indicators to be weighed together, not tests with a percentage limit. It also says that where neither the non-trading income nor the asset base suggests a non-trading element above 20%, a case is unlikely to need more detailed review. A company with a short spell of high cash pending a trading use is judged over a longer timescale; one that has built up a large investment portfolio may not be trading, as in the Allam case HMRC cites at CG64090.

A common scenario: an owner-managed services company with a strong cash position buys a buy-to-let property "as a sideline". Once the letting income, the value of the property and the time spent on it become substantial against the trade, the company may no longer be a trading company, and the shareholders can lose BADR without realising it.

Holding-company test. A holding company qualifies if it heads a trading group: one or more members carry on trading activities, and the activities of the members taken together do not include to a substantial extent non-trading activities (s.165A(8)). The group is assessed as a whole, so a non-trading subsidiary is acceptable if its activities are not substantial at group level. Section 165A(7) contains separate rules for shareholdings in joint venture companies.

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 CG64090 indicators and to 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 conditions. Under TCGA 1992 s.169K an associated disposal qualifies for BADR if:

• You make a "material disposal" of at least 5% of the partnership's assets or of at least 5% of the ordinary share capital of your personal company (Condition A; a whole partnership interest below 5% can qualify in limited cases under s.169K(1AA));
• The asset is sold as part of your withdrawal from participation in the business (Condition B), and at that date there are no arrangements under which you or a connected person can acquire shares in the company or an interest in the partnership (s.169K(3A)-(3BA));
• The asset has been in use for the business throughout the 2 years ending with the material disposal or, if earlier, the cessation of the business (Condition C); and
• You have owned the asset throughout the 3 years ending with the date of its disposal (Condition D, s.169K(4A)).

Do not rely on the one-year figure on the gov.uk eligibility page, which says the business must have used the asset "for at least one year". The statute has required 2 years of business use since Finance Act 2019 (s.169K(4), Condition C), for disposals on or after 6 April 2019.

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.

How much of the business you must sell. Selling the trading premises while keeping all your shares does not qualify - there is no material disposal to attach the associated disposal to. You do not have to sell everything: a sale of 30% of your shares in a personal company clears the 5% minimum in Condition A. The associated disposal still fails if "share purchase arrangements" exist at the date of the disposal (for example a right for you or a connected person to buy shares back), so a partial sale needs checking against s.169K(1B)(b) and (3B) before relying on the relief.

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 disposals qualify for BADR in 2026/27, but the combined gain of £1,100,000 is more than the £1m lifetime limit, so only £1,000,000 can be relieved (TCGA 1992 s.169N).

• Relieved at 18%: £1,000,000 = £180,000
• Excess at 24%: £100,000 = £24,000
• Total CGT: £204,000 (before the annual exempt amount)

The excess is taxed at the higher main rate because BADR gains use up any unused basic rate band first (TCGA 1992 s.1I). 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 Enterprise Investment Scheme (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 has not been an officer or employee of the issuing company or a connected company during the relevant period. TCGA 1992 s.169VW has two narrow exceptions: an unremunerated director with no earlier involvement in the company or its business, and a person who becomes an employee (not a director) more than 180 days after the shares are issued, where there was no reasonable prospect of that employment when the shares were issued.

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. All numbers ignore the £3,000 annual exempt amount for 2026/27 for simplicity: set against gains taxed at 24% it is worth at most £720, and it 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. The personal-company 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 Disposal timing around 6 April 2026

This example shows how the April 2026 rate step worked. James agreed in February 2026 to sell his shares for a £750,000 gain. Normally the disposal date for CGT is the date an unconditional contract is made (TCGA 1992 s.28). But under Finance Act 2025 Schedule 2 paragraph 13, where an unconditional contract made in 2025/26 is completed on or after 6 April 2026, the disposal is treated as made at completion unless the contract is an excluded contract. So the rate turned on the completion date:

• Completion in March 2026 at 14%: £105,000
• Completion in May 2026 at 18% (not an excluded contract): £135,000
• Difference: £30,000

If the contract was an excluded contract (see section 10), the February contract date would still have applied and the 14% rate with it, even with a May completion. Speeding up a deal to beat a rate step has costs of its own: expedited due diligence, price concessions a buyer may extract for a faster close, and the risk of missing something a measured timetable would have caught.

10. Anti-avoidance and transitional rules

Finance Act 2025 Schedule 2 contains anti-forestalling rules for the BADR and Investors' Relief rate steps. The HMRC tax information and impact note describes them, and the enacted text is in paragraphs 11 to 14.

Unconditional contracts completed after a rate step. Normally a disposal under an unconditional contract takes place when the contract is made (TCGA 1992 s.28(1)). For BADR and Investors' Relief that rule is overridden, and the disposal is treated as made when the asset is transferred, in three cases:

• A contract made before 30 October 2024 and completed on or after 6 April 2025 (para 11);
• A contract made from 30 October 2024 to 5 April 2025 and completed on or after 6 April 2025 (para 12); and
• A contract made in 2025/26 and completed on or after 6 April 2026 (para 13).

The override does not apply to an "excluded contract" (para 14). A contract is excluded only if obtaining an advantage from the s.28(1) timing rule was no purpose of entering into it and, where the parties are connected, it was entered into wholly for commercial reasons. The seller must claim that the contract is excluded, with a statement that it meets the conditions, unless the gains on all disposals under excluded contracts total no more than £100,000.

Conditional contracts. Under a conditional contract the disposal takes place when the condition is satisfied (TCGA 1992 s.28(2)). A contract conditional on regulatory approval or due diligence that was signed before a rate step but became unconditional after it was therefore taxed at the later rate. This matters for staged M&A processes where deals exchange conditionally 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 generally treated as taking place at market value regardless of the actual price. For the anti-forestalling rules, a contract between connected parties is excluded only if it was entered into wholly for commercial reasons, in addition to having no purpose of exploiting the timing rule.

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. A cash earnout whose amount cannot be known at the time of sale is treated as a separate asset: its value at the date of sale forms part of the consideration for the original disposal, and each later payment is a disposal (or part-disposal) of that right. HMRC's Capital Gains Manual at CG14970 says a business sale that qualifies for BADR does not carry the relief to the later disposal of the right, so gains on the earnout payments themselves are taxed at the main CGT rates. Where the earnout is to be satisfied in shares or debentures of the buyer, TCGA 1992 s.138A can instead treat the right as a security, so no disposal arises until those securities are sold. The structure of an earnout therefore changes how much of the gain gets BADR, and needs advice before the heads of terms are agreed.

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. 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.