When you sell or close a business, Capital Gains Tax (CGT) may arise on any increase in value. Business Asset Disposal Relief (BADR) (formerly Entrepreneurs’ Relief) is a relief that can, in certain circumstances, reduce the rate of CGT on qualifying business disposals.
This article provides a high-level overview of how BADR is intended to operate in the 2025/26 tax year. The rules are detailed and fact-specific, so this should not be relied on as a substitute for tailored advice.
BADR Rates – Current Position
The BADR rate depends on when the disposal takes place:
- Up to 5 April 2025: 10%
- 6 April 2025 – 5 April 2026: 14%
- From 6 April 2026 onwards: 18%
For disposals in the 2025/26 tax year, qualifying gains may be taxed at 14%, provided all BADR conditions are met.
What is BADR?
BADR is a form of CGT relief for individuals disposing of certain business interests. It can potentially apply to:
- A material disposal of business assets (for example, the sale of a sole trade or partnership interest), and
- Certain associated disposals connected with a material disposal.
Whether a disposal qualifies will depend on the detailed statutory conditions and HMRC’s interpretation of the facts.
Who Might Be Able to Claim BADR?
BADR may be relevant to:
- Sole traders disposing of all or part of their business
- Partners disposing of a partnership interest
- Company directors or employees disposing of shares in their personal trading company
Additional conditions apply in each case, including tests around trading status, shareholdings and roles within the business.
Two-Year Ownership Requirement (Key Condition)
One of the core statutory conditions is that:
The business (or partnership interest) must generally have been owned for at least two years ending with the date of disposal.
If this condition is not satisfied, BADR will not normally be available, even where other conditions appear to be met.
How BADR Interacts with CGT in 2025/26
For the 2025/26 tax year:
- Where BADR applies, qualifying gains are taxed at 14%.
- The Capital Gains Tax Annual Exempt Amount (AEA) is £3,000.
- BADR is subject to a £1 million lifetime limit across all claims (including earlier Entrepreneurs’ Relief claims).
- The interaction between BADR gains, other capital gains and the basic rate band can affect the overall CGT outcome.
Using the CGT Allowance – Planning Point
As a general planning principle (subject to individual circumstances), it is often more tax-efficient to allocate the CGT Annual Exempt Amount against gains that would otherwise be taxed at higher CGT rates, rather than against BADR gains which benefit from a reduced rate. This is not mandatory and the optimal outcome will depend on the wider tax position for the year.
Example
In the 2025/26 tax year, an individual realises:
- A £720,000 gain on shares in their personal trading company (potentially qualifying for BADR), and
- A £33,000 gain on a non-business asset.
Assuming:
- All BADR conditions are met,
- The individual is already within the higher rate band for CGT purposes, and
- The £3,000 Annual Exempt Amount is set against the non-BADR gain,
The CGT outcome might be:
- BADR gain:
£720,000 × 14% = £100,800 - Non-BADR gain after AEA:
£33,000 − £3,000 = £30,000 - Non-BADR CGT (higher CGT rate for non-residential assets in 2025/26):
£30,000 × 24% = £7,200
Illustrative total CGT: £108,000
This example is for illustration only. In practice, the availability of basic rate band, the nature of the assets disposed of (for example, residential vs non-residential property), and other disposals in the year can materially change the CGT position.
What Counts as a Qualifying Disposal?
In broad terms, BADR may be available on:
- The disposal of all or part of a sole trade or partnership
- The disposal of business assets on cessation
- The disposal of shares in a trading company, subject to additional conditions
In most cases, the disposal needs to relate to the whole business or a distinct part of it. The sale of individual assets while the business continues to trade will not normally qualify for BADR.
Key Points to Note
- BADR rates are increasing: 14% in 2025/26, rising further from April 2026.
- The two-year ownership condition is fundamental to eligibility.
- BADR is capped by a £1 million lifetime limit.
- The way gains, losses and the CGT allowance are applied can affect the overall tax outcome.
- BADR claims and eligibility are highly fact-dependent.
This article is intended as a general overview only and does not constitute tax advice. Tax outcomes depend on individual circumstances and legislation in force at the time of disposal. Professional advice should be taken before acting or refraining from action based on this information.
