If you are building a UK company with an exit in mind, the tax you pay when you sell is just as important as the price you achieve.
Business Asset Disposal Relief, formerly known as Entrepreneurs’ Relief, is one of the most significant tax reliefs available to UK founders. But the rules changed in April 2025, and they are changing again. Founders who have not reviewed their position against the current rules may be planning against a tax rate that no longer exists.
This guide explains how BADR works in 2026, what has changed, how to check your eligibility, and what to do now if an exit is on your horizon.
1. What Is Business Asset Disposal Relief?
Business Asset Disposal Relief (BADR) is a Capital Gains Tax (CGT) relief that reduces the tax rate on qualifying gains when you sell or dispose of a business or business assets.
Without BADR, gains on the disposal of business assets are subject to the standard CGT rates. With BADR, qualifying gains are charged at a reduced rate, subject to a lifetime limit.
2. The Rate Changes: What Has Already Happened and What Is Coming
This is where many founders are working with outdated information.
| Period | BADR Rate | Standard CGT Rate (Higher Rate) |
| Up to 29 October 2024 | 10% | 20% |
| 30 October 2024 to 5 April 2025 | 14% | 24% |
| 6 April 2025 onwards (2026/27) | 18% | 24% |
Rates are based on HMRC guidance as of 2026. Always confirm the current rate with your adviser before exchange of contracts.
The gap between the BADR rate and the standard CGT rate has narrowed significantly. The relief is still valuable, but the planning urgency is higher than it was two years ago.
The lifetime limit remains at £1 million of qualifying gains.
3. Who Qualifies for BADR?
BADR is available when you dispose of one of the following:
- The whole or part of a trading business you own as a sole trader or business partner
- Shares in your personal company
- Assets you own personally and use in your business or partnership
To qualify for BADR on shares in a personal company, you must meet all three of the following conditions for a continuous period of at least two years ending on the date of disposal:
- You must be an employee or director 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
There are also rules around what constitutes a trading company. A company with significant non-trading income or investment activity may not qualify.
4. The Associated Disposal Rules
If you own assets personally that your company uses, such as a property or a piece of equipment, you may be able to claim BADR on those assets when you also dispose of your shares. This is known as an associated disposal.
The rules here are specific. The disposal of the personal asset must happen in connection with a disposal of your shares in the company, and the asset must have been used in the business throughout the qualifying period. If rent has been charged for the use of the asset, the relief available may be restricted.
5. How BADR Interacts With Other CGT Reliefs
Annual CGT Exemption: Each individual has an annual CGT exemption, currently £3,000 for 2026/27. This is applied to gains before BADR is calculated and effectively reduces the gain subject to tax.
Investors’ Relief: If you are an external investor rather than an employee or director, Investors’ Relief may apply instead. This also provides a reduced CGT rate on qualifying gains, subject to a separate £10 million lifetime limit.
Share for Share Exchanges: If your business is being acquired and you receive shares in the acquiring company rather than cash, it may be possible to defer CGT using the share exchange rules. This is complex and requires specific advice.
6. Common Mistakes Founders Make With BADR
Not checking the two-year rule in advance: Many founders assume they qualify without confirming the qualifying period. If you have restructured the business, changed your role, or issued shares recently, the two-year clock may not have started when you think.
Dilution below the 5% threshold: Founders who issue shares to employees through EMI schemes or raise investment rounds can inadvertently fall below the 5% holding required for BADR. Once below 5%, BADR is no longer available on a disposal unless specific anti-dilution protections have been put in place.
Assuming the company qualifies as a trading company: If your company holds significant cash, investments, or property, HMRC may classify it as an investment company rather than a trading company. This disqualifies BADR entirely.
Missing the interaction with pension contributions: Pension contributions in the years leading up to a sale can reduce taxable income and improve overall efficiency on exit. This is often overlooked in exit planning.
Leaving BADR planning to the last minute: BADR requires conditions to be met for two years before disposal. Planning decisions made three months before exchange of contracts are often too late to make a meaningful difference.
7. What to Do Now If an Exit Is on Your Horizon
- Confirm your current shareholding and ensure it remains above 5% of ordinary share capital and voting rights.
- Verify that your role as director or employee has been continuous for at least two years.
- Review the company’s trading status, particularly if it holds significant cash reserves or non-trading assets.
- If you have issued shares to employees or raised investment, check whether anti-dilution provisions are in place.
- Consider the timing of any exit in the context of the current rate. An exit structured in the current tax year uses the 18% rate. Any future rate changes would depend on government policy.
- Discuss the use of pension contributions or other tax-efficient structures in the period leading up to a sale with a qualified tax adviser.
Final Thoughts
BADR remains one of the most valuable tax reliefs available to UK founders. At 18%, it still saves meaningful tax compared to the standard CGT rate on the same gain. But the planning window is longer than most founders realise, and the conditions must be met before exchange, not after.
If you are thinking about an exit in the next one to three years, now is the right time to review your position. The decisions that protect your BADR eligibility today are the ones you need to be making before the qualifying period runs out.
Thinking About an Exit? Let’s Review Your Position.
Book a free consultation with our UK tax specialists at SustainEdge Global.
We will review your shareholding, company structure, and exit timeline, and help you protect as much of your gain as the law allows.
